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Prentice Hall, 2002 1
Chapter 3
Retailing in Electronic Commerce (E-Tailing)
Prentice Hall, 2002 2
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
Prentice Hall, 2002 3
Learning Objectives (cont.)
Identify the principles of “click-and-mortar” strategies for traditional retailersDescribe the issue of disintermediation, reintermediation, and channel conflicts in e-tailing
Prentice Hall, 2002 4
Opening Case
For E-tailer EC can be classified as B2C or B2BMost companies used both classifications.B2C business model where customers look for a:
Low priceFast shipmentGood return policyHelpful customer service
Prentice Hall, 2002 5
Opening Case: Amazon.com
Largest Bookstore in the world(billions of books)Begin since 1995Offers millions of items
Books and musicDVDs and videosToys and video gamesElectronics and softwareHome improvement products
Prentice Hall, 2002 6
Opening Case: Amazon.com (cont.)
Started business in 1995Sales
1996 = $15.7 million2000 = $1.8 billion
Products
1999 = 5 million titles2000 = 13 million books, music, DVD/video titles
Prentice Hall, 2002 7
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 back-end order fulfillment processing
Prentice Hall, 2002 8
Opening Case: Amazon.com (cont.)
Easy browsing and searchingUseful product informationReviews, recommendations, and personalization
Broad selection and low pricesSecure payment system 1-Click order technologyGifts departmentOnline communitySecured payments
Key Features of Amazon
Prentice Hall, 2002 9
Opening Case: Amazon.com (cont.)
Customer relationship management (CRM)Creates 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
Prentice Hall, 2002 10
Opening Case: Amazon.com (cont.)
Financial performanceOverall losses rather than profits Ability 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
Prentice Hall, 2002 11
Opening Case: Amazon.com (cont.)
Diversification through business alliances that provide knowledgeable entry into new markets
Online sale of cars - greenlight.com Online health and beauty aids - drugstore.com Wireless phones – multiple business partnersToys - ToysrUs.com
Prentice Hall, 2002 12
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
Prentice Hall, 2002 13
E-Tailing and B2C Market Growth (cont.)
The early days of retailer used Brochureware with no interactivityphysical retailer store or “brick-and-mortar” can combine to online…Then become online and offline prsence or “click-and-mortar” (sometime call “brick-and-click”)The B2C Market success is derived from:
Offering quality merchandise at good pricesExcellent customer serviceConvenience
*** Not different from traditional but online retail stores have more offering services…
Prentice Hall, 2002 14
Some statistic
During 2001, estimated about 75 million of users participated online shopping
2000, worldwide B2C revenue $53 to $238 billion
2004, forecasted $428 to $2,134 billion
(by emarketer.com: 2001)
Men are likely to purchase consumer electronics and computer HW/SW and Women likely to purchase apparel items (by Goldman Sachs research)
Prentice Hall, 2002 15
E-Tailing and B2C Market Growth (cont.)
Characteristics of goods leading to high online sales volumes
Brand recognition and guaranteesA guarantee is provided by reliable vendorsDigitized productsInexpensive itemsFrequently purchased, inexpensive itemsWell-known items with standard specificationsWell-known package item which cannot open even in department store
Prentice Hall, 2002 16
Questions?
How do online customers decide what to buy and where?What is their decission-making process?How can e-tailers influence consumer purchasing decissions?
Prentice Hall, 2002 17
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
Prentice Hall, 2002 18
The Consumer Purchase Decision Process
Prentice Hall, 2002 19
Consumer Purchase Processand Marketing Plan (cont.)
Time-starved consumers : willing to pay higher price to save time on shoppingShopping avoiders : dislike shopping, people, trafficsNew technologists : “because it’s cool”Time-sensitive materialists or click-and-mortar consumers : use online to look for products, and make a purchase at traditional store
Types of online shoppers
Prentice Hall, 2002 20
Traditionalists : prefer store and may never adopt to online shopping behaviorHunter-gatherers : 20% of online shoppers enjoy the process of price comparison and search a good valueBrand loyalists : shop online for particular brandSingle shoppers : 16% of online shoppers prefer internet for shopping, banking, communication, game playing, news and other activities
What are the criteria that individual shoppers use?
Consumer Purchase Processand Marketing Plan (cont.)
Types of online shoppers
Prentice Hall, 2002 21
Decision Criteria
Value proposition—customer service, better prices, higher qualityPersonal service—treat the customer as a unique individual Convenience—self-contained site that serves all the customer’s needsOther criteria—service after the sale, Telephone support 24/7, return policy
Prentice Hall, 2002 22
A Marketing Plan
E-tailer must identical all posible ways to …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, place
Prentice Hall, 2002 23
Online Purchasing Aids
Shopping portals : advice and rating producs or e- tailers
Comprehensive portals e.g. shopping.yahoo.com
Links to many different sellersShopping comparison sitesComparison tools are available
Niche oriented e.g. bsilly.comSpecialize in a certain line of products (dogtoys.com)Some collect referral fee onlyOthers have formal relationships with affiliates
Prentice Hall, 2002 24
Online Purchasing Aids (cont.)
Shopbots and agents—tools that scout the Web for specific search criteria requested by consumers(include negotiation and auction agents)
Mysimon.com - best prices on multiple items using SKU(Stock Keeping Unit)AutoBytel.com – carsZdnet.com/computershopper – computersOffice.com – office supplies
Prentice Hall, 2002 25
Online Purchasing Aids (cont.)
Business ratings sites—sites that rate e-tailers
Bizrate.com—compiles results provided by a network of shoppersGomez.com—consumer identifies relative importance of different criteria
Prentice Hall, 2002 26
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
Prentice Hall, 2002 27
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
Prentice Hall, 2002 28
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)
Prentice Hall, 2002 29
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
As Click-and-mortarAdditional marketing channel to the conventional oneEffectively supports build-to-order requests
Prentice Hall, 2002 30
Disintermediation in the B2C Supply Chain
Source: M. Warkentin, et al. (2000). Used with permission of Dr. Merrill Warkentin.
Prentice Hall, 2002 31
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
Prentice Hall, 2002 32
E-Tailing Business Models (cont.)
Traditional retailers with Web sitesPhysical storeMay include mail-order or catalog salesMultichannel store operates both
Physical storeE-tail site
Prentice Hall, 2002 33
ODDS: Grocery Market Case
On-Demand Delivery Services (ODDS): use common carrier to handle outbound logistics/distribution
Own fleet of delivery vehiclesRegular deliveries (weekly bases)Delivery within short time period (1 hour or same day)
Prentice Hall, 2002 34
ODDS: Grocery Market Case (cont.)
Potential online grocery shoppersShopping avoidersNecessity users—limited by their ability to shopNew technologistsTime-starved consumersResponsible consumersTraditionals
Repeat customers : provide help for repetitive orders, itemsExample: Parknshop in Hong Kong, peapod.com
Prentice Hall, 2002 35
Digital Delivery
Digital (“soft”) goods : customer may prefer physical distribution
Music, 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
Prentice Hall, 2002 36
Digital Goods
Prentice Hall, 2002 37
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
Prentice Hall, 2002 38
Digital Delivery (cont.)
New developments : invented on InternetCustom-publishing music CD sites—collection of personal favorites in CD shiped to customerDisintermediation of traditional print media
Journals and magazines : paper only subscription, online only subscription or dual-modeNewspapers (e.g., Wall Street Journal)
Prentice Hall, 2002 39
Successful Click-and-Mortar Strategies
Click-and-mortar hybrid strategies (mature)Speak 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
Prentice Hall, 2002 40
Successful Click-and-MortarStrategies (cont.)
Circuit City Case: transform to click-and-mortar (CircuitCity.com) electronic store
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
Prentice Hall, 2002 41
Successful Click-and-MortarStrategies (cont.)
Amazon and Toys R Us: alliance of pure-play with traditional retailer (new model)
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
Prentice Hall, 2002 42
Disintermediation & Reintermediariesin E-tailing
Disintermediation—manufacturer sells directly to consumer so customers need to select among a large number of manufacturers onlineReintermediaries—new intermediary roles in the digital environment(online assistance) offer new ways to:
Reach new customersBring value to customersGenerate revenues
Prentice Hall, 2002 43
Channel Conflict & Personalization
Channel conflict—members antagonistic over:
IncentivesRewardsPoliciesSupport
*Make Channel cooperation
Personalization—custom designed marketing plan
Tailored to buying patternsAppeal to sense of valueExcellent customer serviceMass customization
Prentice Hall, 2002 44
E-Tailing : Lessons Learned
Profitability—online marginal sales don’t lead to marginal profitsBranding—drive to establish brand can lead to excessive spending(50% of Venture capital)Performance—Web sites need to function in a fast, user-friendly mannerStatic design—dynamic sites with rich databases of information appeal most to customers