Nonstore Retailing & Electronic Channels

Chapter 14 with Duane Weaver

Outline

• Nonstore retailing– Catalog– Direct-Selling Org’s (DSO’s)

• Electronic Channels– Market Opp’s– Service Output Provision and Demand-Side Gaps– Channel Flow Performance and Supply-Side Gaps– Coordination Challenges

Non-Store Retailing: Catalogs

• E.g.: Sears Catalog, Land’s End…• Service Outputs Offered:

– Break bulk– Assortment and variety can vary widely (trend towards

specialty in-depth focused narrower range products)– Smaller Catalogs – more targeted mailings– Ultimate in Spatial Convenience (shop from home, yet

perhaps a delay without expense of overnight delivery)

Non-Store Retailing: Catalogs• Segments served:

– Time starved working mother– Busy Single parents– People whose time and travel costs to get to a store are expensive– The Housebound– Others?

• Related Costs and Risks:– Reliance on manufacturers if do not produce yourself– Creation of the catalog (size, product coverage, segment

distribution…)– Mailing List – look at lifetime value of mailing list and delete or add

customers– Order Fulfillment – Logistics of picking and packing– Stock-Outs – inventory management vs. delivery delays– Merchandise returns – 6-15% in stores, 35% in catalog sales. Returns

are more expensive to manage (bulk broken) and ship

Direct-Selling Org’s (DSO’s)

• Direct Selling is “the sale of a consumer product or service in a face to face manner away from a fixed retail location”.

• Typically high reliance on personal selling• E.G.’s: Amway, Mary Kay, Herbal Life, Avon,

and Tupperware.• Top 5 DSO countries - sales (Canada is 10th):

1. Japan2. USA3. Brazil4. Germany5. Korea

Direct-Selling Org’s (DSO’s)MLM- Multi-level Marketing (MLDSO)

• MLDSO distributors are compensated in three different ways:1. Mark-up on wholesale cost earnings2. MLDSO commission paid per sale3. MLDSO commission on sales made by subordinates (recruits)

• Balance growth of Network vs. Sale of products (often based on personal consumption)

• Ilegal Pyramid Schemes:– Fraudulent mechanisms by which new recruits are required to pay a

nonrefundable fee for becoming a distributor and the distributor’s only reward is this fee (there is no sale and/or consumption of a product or service). Ultimately the last layer of the pyramid will make no money from anyone (population maximized), yet the highest in the pyramid earns money from everyone.

Electronic Channels

…any channel that involves using the Internet as a means of reaching the end-user or any channel for which the consumer literally buys on-line. B2C or B2B.

Market Potential for E-Channels

• Restrictive Market – must be able to shop online.

• Strong Growth in some countries –1998 33% of US online, whereas in 2003 56% of US online

Service Outputs and Demand-Side Gaps in E-Channels

• Positives:– Any time of day or night spatial convenience– More pleasant shopping experience, takes

less time– Price-value promotions for online shopping– Lower prices– Broader access– Consumer Control

Service Outputs and Demand-Side Gaps in E-Channels

• Negatives:– Product return challenges– Stock availability– Timely delivery (like catalog sales)– Trust and Privacy– Prefer face-to-face shopping

E-Channel Flow Performance and Supply-Side Gaps

• New Fixed Costs Created– Technical Infrastructure– Warehousing or inventory arrangements– Need for new intermediaries (E-bay, yahoo)

• May reduce costs (EDI integration, VMI, and CRP systems)• Physical Possession – inventory, pick, pack, ship costs increase. 3rd

Party expert business is on the rise as a result (FedEx).• Promotion – impacts on alternative channels such as retail stores• Negotiation – may decrease or increase in intensity• Risking – increased fear about disclosure of financial information online,

reduce risk of holding inventory (ship direct from manufacturer)• Ordering – Technology has improved effectiveness of ordering

dramatically (reducing operating cost and increasing entry cost)• Payment – existence of electronic payment from backing has facilitated

e-commerce growth. Trust issues have induced new 3rd party members like PayPal.

E-Channel Coordination Challenges

• Creates Dual Channel Conflicts related to Goals, Domain and perception-of-reality.

• Bricks and Mortar in combination with online resellers may exert greater strength in the channel, increasing power conflicts.

• Confusion about online threat results in restrictive channel behaviour precluding channel success (e.g.: mall merchants restricted from online expansion by mall leasor)

Thank You!