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Chapter 3: Non-Store Based Retailing Online Retailing

I. Non-store Versus Store-based Retailers While only 10% of retail sales are made through non-store channels, sales in non-store formats are growing faster than store sales. Non-store retailing is a form of retailing in which sales are made to consumers without using stores.

I. Non-store Versus Store-based RetailersThe various types of non-store retailers are defined in terms of the medium they are using to communicate with customers: Electronic retailers use an interactive computer or computer-like interface to communicate with customers. Catalog and direct mail retailers communicate using printed material. Direct selling retailers communicate with customers through a personal, face-to-face contact by a salesperson. TV home shopping retailers use television. Vending machine retailers have limited communications through the display of the merchandise in the machine.

I. Non-store Versus Store-based Retailers The nature of the communications between the retailer and its customers differs for the various non-store retailing formats. The communications in direct selling are highly interactive. Electronic retailing has the potential for providing this same high level of interactivity. On the other hand, the communications in TV home shopping, vending machine, and catalog retailing are not very interactive.

I. Non-store Versus Store-based Retailers Most non-store retailers offer consumers the convenience of selecting and purchasing merchandise at a time and location of their choosing. Frequently consumers are not able to get some important services provided by store-based retailers including that they cannot touch and feel the merchandise, try it on, attend sessions on how to use it, or have it altered prior to purchase.

II. Electronic RetailingElectronic retailing is a retail format in which the retailer and customer communicate with each other through an interactive electronic network. After an electronic dialog between the retailer and customer, the customer can order merchandise directly through the interactive network or by telephone and the merchandise is typically delivered to the customers home.

II. Electronic RetailingA. Factors Affecting the Growth of Electronic Retailing Electronic retailing is less than 1% of retail sales in the U.S. and even less in Europe and Asia. However, the annual growth of U.S. electronic retail sales is over 100%. If this growth rate continues, electronic retailing will have a major impact on the retail industry significantly decreasing retail sales in stores. Three critical factors affecting the adoption of a new innovation such as shopping electronically are: 1. The environment where customers can try the innovation 2. The perceived risks in adopting the innovation 3. The benefits offered by innovation compared to the present alternatives.

II. Electronic Retailing (Cont.)1. Trying Out Electronic Shopping Women now comprise slightly less than half of Internet users, which is important for the electronic retailer because women do most of the shopping. The substantial Internet usage by Generation Y suggest a bright future for electronic shopping retailing.

II. Electronic Retailing (Cont.)2. Perceived Risks in Electronic Retailing A critical concern of consumers is that credit card transactions are not secure when shopping on the Internet. A perception of risk is diminishing as credit card companies promote the use of their cards on the Internet and inform customers that the customers will not be responsible for security lapses.

II. Electronic Retailing (Cont.)Issues about Shopping on the Internet 1. Entertainment and Social Experiences 2. Safety 3. Ordering and Getting Merchandise 4. Number of Alternative 5. Assistance in Screening Alternatives 6. Providing Information to Evaluate Merchandise 7. Cost of Merchandise Electronic retailing sales will grow only if the format offers consumers advantages over the existing retail formats.

II. Electronic Retailing (Cont.)1. Entertainment and Social Experiences In-store shopping can be a stimulating experience for some people, providing a break in their daily routine and enabling consumers to interact with friends. All non-store retail formats are limited in the degree to which they can satisfy these entertainment and social needs.

II. Electronic Retailing (Cont.)2. Safety Non-store retail formats have an advantage over store-based retailers by enabling customers to review merchandise and place orders from a safe environment-their homes

II. Electronic Retailing (Cont.)3. Ordering and Getting Merchandise Electronic retailing, like most non-store retail formats, enables consumer to order merchandise from any location at any time of the day. However, consumers usually have to wait several days to get the merchandise. Thus, all non-store retailers suffer in comparison to stores on this dimension. The importance of getting merchandise immediately to customers depends on the type of buying situation and merchandise.

II. Electronic Retailing (Cont.)4. Number of Alternative A person living in Columbus, Ohio can shop electronically at Harold's in London in less time that it takes to visit the local supermarket. Having a lot more alternatives to consider might not be that much of a benefit. While it is easy to go from one web sight to another, finding what you want is not so easy because each web site has a different interface which customers have to learn to get the information they want.

II. Electronic Retailing (Cont.)6. Providing Information to Evaluate Merchandise Retailers vary in the sheer amount of information provided about the merchandise they offer. Store-based retailers also are different in the information they make available to consumers. Specialty and department stores typically have trained and knowledgeable sales associates, while many discount stores do not. Electronic retailers have greater opportunities to provide information to their customers than specialty and department store retailers.

II. Electronic Retailing (Cont.)7. Cost of Merchandise Some experts suggest that electronic retailers will have much lower costs than in-store retailers because electronic retailers do not have to spend money building and operating stores at convenient locations. However, electronic retailers, or their customers, will have higher costs of delivering small quantities of merchandise to homes, as well as dealing with the high level of return, and attracting customers to their websites.

II. Electronic RetailingC. What Type of Merchandise Will be Sold Effectively by Electronic Retailers? In addition to the amount and presentation of information, retail formats also differed in the type of information they can present effectively. For instance, when purchasing apparel, some critical information might be look and see attributes like color and style, as well as touch and feel attributes like how the apparel fits. Based on the difficulty of providing touch and feel information through non-store channels, one might conclude that non-store retailers will not be able to successfully sell merchandise with more important touch and feel attributes like clothing, perfume,flowers, and food. However, this type of merchandise is presently sold by non-store retailers.

II. Electronic RetailingC. What Type of Merchandise Will be Sold Effectively by Electronic Retailers? (Cont.) Branding overcomes many of the uncertainties in purchasing merchandise without touching and feeling it. In some situations, the electronic retailer might even be able to provide superior information compared to store retailers. In other situations, touch and feel information might be important, but the information in a store is not much better than the information provided by an electronic retailers.

II. Electronic RetailingC. What Type of Merchandise Will be Sold Effectively by Electronic Retailers? (Cont.) Some services retailers have been very successful over the Internet, because their look and see offering can be presented very effectively over the Internet. The critical issue determining what types of merchandise can be sold successfully by electronic retailers is whether the electronic retailer can provide enough information appropriate to the purchase to make sure customers will be satisfied with the merchandise once they get it.

II. Electronic Retailing (Cont.)D. Will Electronic Retailing Lead to More Price Competition? With electronic retailing, consumers can search for merchandise across the Internet at a low cost. The number of stores that a consumer can visit and compare prices is not limited by physical distance. To limit price comparisons, presently HIS retailers make it difficult for customers to go from one Internet site to another.

II. Electronic Retailing (Cont.)D. Will Electronic Retailing lead to More price Competition? (Cont.) Thus by making these comparison difficult, electronic retailers are limiting attractiveness and growth of the format. However, consumers eventually will insist on making these comparisons and will reward electronic retailers that offer this service by going to their sites. While consumer shopping electronically can collect price information with little effort, they can also get a lot of other information about the quality and performance of products at a low cost.

II. Electronic Retailing(Cont.)E. Keys to Success in Electronic Retailing Some critical resources needed to successfully sell merchandise electronically are (1) strong brand name and image, (2) customer information, (3) complementary merchandise and services, (4) unique merchandise, (5) the ability to effectively present information on the web pages, and (6) a distribution system to efficiently ship merchandise to homes and receive retu