topic 3: electronic retailing (e-tailing) business models

3-1

Module: Competing in the Network Economy

TOPIC 3: ELECTRONIC RETAILING (E-TAILING) BUSINESS MODELS

3.1 E-tailing, its characteristics and business models3.2 Online travel & tourism services and industry impact3.3 Online real estate, insurance and stock trading3.4 Cyberbanking and online personal finance.3.5 On-demand delivery services and e-grocers.3.6 Online delivery of digital products and entertainment.3.7 Online purchase aids & comparison-shopping aids3.8 Critical success factors and problems with e-tailing

and lessons learned 3.9 Reintermediation, channel conflict, and

personalisation in e-tailing.

3-2


Case Study: : The King of E-Tailing

• The Opportunity– July 1995, e-tailing pioneer Amazon.com, offered

books via an electronic catalog from its Web site (amazon.com)

– The company has continually enhanced its business models and electronic store by:

• expanding product selection• improving the customer’s experience• adding services and alliances• recognising the importance of order fulfillment

and warehousing

3-3


• Technology used– Amazon.com has expanded in a variety of directions:

• Offers specialty stores (professional and technical store)

• Expands its editorial content through partnerships with experts in certain fields

• Increases product selection with the (used and out-of-print titles)

• Expands its offerings beyond books (June 2002 became an authorised dealer of Sony Corporation selling Sony products online)

• Today: a diversified retailer of products and services


3-4


– Key features of Amazon.com:

• Easy browsing, searching, and ordering

• Useful product information, reviews, recommendations, and personalisation

• Broad selection• Low prices• Secure payment systems• Efficient order fulfillment• Personalisation


– Enjoyable features:• “Gift Ideas” section

features seasonally appropriate gift ideas and services

• “Community” section provides product information and recommendations shared by customers

• “E-Cards” section, free animated electronic greeting

3-5


– Marketplace services:• Hosts and operates auctions

• zShops service hosts electronic storefronts for a monthly fee

• Allowing small businesses the opportunity to have customised storefronts supported by the richness of Amazon.com’s order-fulfillment processing


3-6


– Amazon.com is an online leader in CRM• Informative marketing front ends• One-to-one advertisements • Free posting of menus from thousands of restaurants• “Welcome back, Sarah Shopper” with recommendations of

new books from the customers preferred genre based on previous purchases.

• Sends buy recommendations via e-mail to cultivate repeat buyers

• Efficient search engine and other shopping aids• Customers can personalise their accounts and manage

orders online with the patented “One-Click” order feature including an electronic wallet


3-7


– In 1997, Amazon.com started an extensive affiliates program

• By 2002, the company had more than 500,000 partners that refer customers to Amazon.com

• Amazon pays a 3 to 5% commission on any resulting sale

• Alliances with major “trusted partners” provide knowledgeable entry into new markets

• Carsdirect.com allows it to sell cars online• Drugstore.com connects to health and beauty aids• AT&T, Nextel and others suggest service plans for

wireless phones


3-8


• The Results– Number one e-tailer since 2001 generated $3.12B– Very successful in reducing its costs and increasing its

profitability– Annual sales have trended upward (over $5B in 2003)– $15.7 million in 1996 to $600 million in 1998 to about

$4 billion by 2002– In 2003 the site offers over 17 million book, music, and

DVD/video titles to some 20 million customers– Offers several features for international customers– In January 2002, Amazon.com declared its first ever

profit—for the 2001 fourth quarter


3-9


• What can we learn…– demonstrates the evolution of e-tailing– some of the problems encountered by e-tailers– solutions employed by Amazon.com to expand

its business– the opportunities for e-tailing


3-10


3.1: Internet Marketing and E-Tailing

• Overview of e-tailing– Electronic retailing (e-tailing):

• Retailing conducted online, over the Internet

– E-tailers: • Those who conduct retail business over the

Internet

• The concept of retailing and e-tailing implies sales of products/services to customers, that is B2C EC.

3-11


• Size and Growth of the B2C Market– Reported amounts of online sales deviate

substantially based on how the numbers are derived

• Annual online 2004 sales were estimated to be over $70 billion

• The average online shopper spent over $350 per quarter

• Forrester Research estimates that e-tailing will reach $316 billion by 2010


3-12


• Computer hardware and software

• Consumer electronics

• Sporting goods

• Office supplies

• Books and music

• Entertainment

• Toys

• Health and beauty products

• Apparel and clothing

• Jewelry

• Cars

• Services

• Others


What Sells Well on the Internet?

3-13


• Characteristics of successful e-tailing– High brand recognition (eg., Lands’ end, Dell)– Guarantee provided by highly reliable or well-known

vendors (eg., Dell)– Digitised format (eg., software, music, videos)– Relatively inexpensive items (eg., office supplies)– Frequently purchased items (eg., groceries)– Commodities with standard specifications (eg., books,

airline tickets), physical inspection unimportant.– Well-known packaged items that cannot be opened even

in a traditional store (eg., vitamins, chocolates)


3-14


3.1: Primary E-Tailing Business Models

• Classification by Distribution Channel1. Mail-order retailers that go online

• Retailers leveraging on existing infrastructures by using direct online marketing as their main distribution channel

2. Direct marketing from manufacturers• Manufacturers market directly online to customers

3. Pure-play e-tailers• No physical stores, only online presence

4. Click-and-mortar retailers• Traditional retailers with supplementary Web sites

5. Internet (online) malls• Many independent online merchants in one location.

3-15


3-16


• Direct marketing by mail order companies– Broadly, marketing that takes place without

intermediaries between manufacturers and buyers;

– In our context, marketing done online between any seller and buyer

– For a successful Mail-Order company to have a distinct advantage in online sales, it must have good payment processing, inventory management and order-fulfillment operations as shown in the following Lands’ End case study.

3.1: Classification by Distribution Channel

3-17


• Lands’ End: How a mail-order company moved online– Successful because of the logistics system already in place– A subsidiary of Sears, Roebuck and Company – Internet sales in 2000—10% of the company’s $1.3B total– Projected Internet sales are 20 percent in 2003– In 1995 it offered only 100 products online; as of 2002, all

of its products are online – Global presence in Japan, Germany, and the United

Kingdom– Orders generated online are shipped from these distribution

outlets—U.S. customers usually receive their orders in 2 days

Case Study: Lands’ End

3-18


• Women customers can build and store a three-dimensional model of their body (Personal Model) that recommends outfits that flatter certain body profiles and suggests sizes based upon customer’s measurements

• Male customers can use a feature called “Oxford Express” to sort through hundreds of fabrics, styles, collar and cuff options, and sizes within minutes

Case Study: Lands’ End

• Customers can track their order status online and request catalogs using the Internet

• Maintains a B2B “store” where companies can customise clothing such as polo shirts with their logo for use as company uniforms, incentives, or gifts.

3-19


• Direct sales by manufacturers– Sellers understand their markets better because of the direct

connection to consumers

– Consumers gain greater information about the products through direct connection to the manufacturers

– Example: Dell Computers: build-to-order customisation

• Virtual (pure-play) e-tailers– Firms that sell directly to customers over the Internet without

maintaining a physical sales channel. Example: cattoys.com.


3-20


• Click-and-mortar retailers– Brick-and-mortar retailers with a transactional Web site from

which to conduct business.

• Multichannel business model– A business model where a company sells in multiple

marketing channels simultaneously

– Example: A company conducting its business using both physical stores and online stores.


3-21


• Retailing in online malls or e-mall – Referring directories

• Directory organised by product type• Catalog listings or banner ads at the mall site advertise the

products or stores

– Malls with shared services• Consumer can find the product, order and pay for it, and arrange

for shipment• Hosting mall provides these services, but they are executed by

each store independently.• Ideally, the customer would like to go to different stores in the

e-mall, use one shopping cart, and pay only once. This integrated services (with a single checkout for many merchants) is possible in Yahoo!store (smallbusiness.yahoo.com/merchant).


3-22


• Of the many other B2C services, four of interest are those that deliver physical products, digital products and services:– Postal Services

– Services and Products for Adults

– Wedding Channels

– Gift Registries

3.1: Representative B2C Services

3-23


3-24


3.2: Travel and Tourism Services Online

• Online travel is probably the most successful e-commerce implementation

• Online services provided include:– General information – Reserving and purchasing tickets, accommodations, and

entertainment– Travel tips – Electronic travel magazines– Fare comparisons– Travel products store– Expert opinion– Frequent-flyer deals

3-25


• Benefits of Online Travel Services– Benefits to consumers

• Large amount of free information available 24/7

• Potential for for substantial discounts in price

– Benefits to providers• Airlines, hotels, and cruise lines are selling

otherwise-empty spaces

• Direct selling saves the provider’s commission and its processing. (Otherwise it has to sell via a transaction broker which charges fees for its services)


3-26


• Role of software (intelligent) agents in travel services– Intelligent agents could provide a service to travel customers by

providing buyer-seller negotiations. – Future applications would allow greater information flow for

better pricing and decision making.


3-27


3.3: Real Estate, Insurance & Stock Trading Online

• Real Estate Applications– Advice to consumers on buying or selling a home– Directory and new sites– Property listings (commercial and residential) – Links to realtors– Maps are available– Information on current mortgage rates– Mortgage comparisons– Mortgage brokers– Online lenders– Sites for persons who want to sell their homes privately,

without using a real estate agent– Rental properties are listed.

3-28


• Insurance Online– An increasing number of companies use the

Internet to offer standard insurance policies (automobile, home, life, or health) at a substantial discount

– Third-party aggregators offer free comparisons of available policies

– Many large insurance companies are using a dual distribution strategy, by adding online distribution of standard insurance policies to their traditional agency distribution system.


3-29



3-30


• Investment Information Online– Current financial news (money.cnn.com)

– Bond prices (bloomberg.com)

– Free (expert) advice (thestreet.com)

– Stock screening and evaluation tools (MultexInvestor)

– Trading strategies (Schwab Trader)

– The latest on funding and pricing of IPOs

– Financial information (earnings estimates)


3-31


• Advantages of Trading Stocks Online– Ease-of-use

– Access to large amounts of information

– Convenience

– Reduced costs.

• Risk of Trading Stocks Online– The major risk of online trading is security

– The risks of delayed information as well as the relative ease of trading (increasing the amount of trading overall).


3-32


• Almost 55% of stock trading in Korea is done online • Fraudulent online stock trading—August 2002

– A criminal used a PC in an Internet cafe to place a buy order at a high price for 5 millions shares of “Delta Information & Communication”. He used the trust company’s stolen account number and password

– In 90 seconds, over 100 people sold more than 10,000 shares each for a total of 2.7 million shares pushing the price of the shares way up

– Hacker stopped buying and disappeared

– Without buyers the price of Delta’s shares started to decline

– In 2 days, Daewoo Securities (manager of the Hyundai account) suffered U.S. $5 million paper losses

Case Study: Dangers of Online Stocks Trading

topic 3: electronic retailing (e-tailing) business models

Documents