Chapter 2
Retailing in
Electronic Commerce
© Prentice Hall, 2000
1
Learning Objectives
Define the factors that determine the
business models of electronic marketing
Identify the critical success factors of direct
marketing
Design the desirable relationship in a direct
marketing setting
Analyze the critical success factors of
electronic intermediaries
Identify the typical products that sold well in
the electronic market
© Prentice Hall, 2000
2
Learning Objectives (cont.)
Observe the reactive strategy of traditional
department stores
Discuss whether electronic commerce should
always target global markets
Describe the consumer’s shopping
procedures on the Internet
Discuss the types of aiding-comparisonshopping devices
Describe the impact of EC on
disintermediation and re-intermediation in
retailing
© Prentice Hall, 2000
3
Overview of Electronic Marketing Structure
Consumer-oriented Electronic Marketing (B2C)
Mostly online; on the Internet
Growing offline too, mainly by using smart cards,
although it is still experimental
Business-oriented Electronic Marketing (B2B)
Needs more precise record keeping, trackability,
accountability, and formal contracts, usually with
high volume of transactions and large amount
payments
© Prentice Hall, 2000
4
Advantages of Electronic Marketing
Customers can order from cyberstores 24
hours a day, 7 days a week from any place in
the world
Direct marketing
Customization
Online customer service
Electronic shopping malls:
Intermediaries (e.g. Internet Mall)
Stores (e.g. Amazon, J.C.Penney Online)
Electronic intermediaries
Global marketing
© Prentice Hall, 2000
5
Forecast of the B2C Electronic Markets
Forecasting Institutions
IDC
VSAComm
VeriFone
Actif Media
Killen & Assoc.
Yankee
Jupiter
E-land
EU
USA
EITO
AEA/AU
Hambrecht & Quest
Forrester
1997
1,000
48
350
436
850
45
450
200
363
200
1,170
518
2000
117,000
3,500
65,000
46,000
775,000
144,000
580
10,000
228,000
200,000
45,000
23,200
6,579
[Source: OECD, 1997]
Initial Forecast of B2C Electronic Market Size
© Prentice Hall, 2000
6
Forecast of the B2C Electronic Markets (cont.)
Kinds of items sold
Items
Apparel
Gifts/flowers
Books
Food/drink
Clothing
Entertainment
Subscription services
Pornography
Music
Online games
Consumer finance
Consumer insurance
(Unit: Millions of U.S. Dollars)
1997
2000
46
322
45
658
16
Not available
39
336
89
322
85
1,250
120
966
52
Not available
9
186
127
1,013
68
Not available
30
1,110
[Source: OECD, Sept. 1997]
Initial Forecast of B2C Electronic Market Segments
© Prentice Hall, 2000
7
Forecast of the B2C Electronic Markets (cont.)
What sells on the Internet?
Items with high brand recognition
Goods that can be transformed to digitized goods
like books, music, and video
Items with security guarantee given by highly
reliable or known vendors
Relatively cheap items
Repetitively purchased items such as groceries
Commodities with standard specification
Items whose operating procedures can be more
effectively demonstrated by a video
Packaged items which are well known to
customers and which cannot be opened even
when customers physically visit the store
© Prentice Hall, 2000
8
Business Models of Electronic Marketing
Direct Marketing Manufacturers
Vs.
Indirect Marketing Manufacturers
Active Strategic Posture
Vs.
Reactive Strategic Posture
Global Marketing
Vs.
Regional Marketing
Electronic Mall
Vs.
Electronic Store
Sales
Vs.
Customer Services
Full Cybermarketing
Vs.
Partial Cybermarketing
Electronic Store
Vs.
Electronic Broker
Generalized Mall
Vs.
Specialized Mall/Store
© Prentice Hall, 2000
9
Business Models of Electronic Marketing (cont.)
Proactive Vs. reactive strategic posture toward
cybermarketing
Proactive strategic posture toward cybermarketing
a company’s main distribution channel is the Internet,
and internal management such as inventory and
operations management is focused to affect the benefit
of cybermarketing
Reactive strategic posture toward cybermarketing
the traditional physical distribution channel is left as
the company’s main distribution channel even though
the company has opened an online distribution channel
Global Vs. regional marketing
© Prentice
Hall, 2000
Sales Vs. customer
services
© Prentice Hall, 2000
10
10
Direct Marketing
Active and full direct Marketing
Dell Computer Corporation Case
Founding spirit of dell: telemarketing
Astonishingly high growth and returns
Revenue via the Internet
Dell’s products on the Internet
© Prentice Hall, 2000
11
Direct Marketing (cont.)
Dell’s Critical Success Factors
Price competitiveness owing to masscustomization and direct marketing
Database marketing and customer intimacy
Global reach and value added services at a
single contact point
High reliability and reputation
Delivery support
Advanced web applications
© Prentice Hall, 2000
12
Direct Marketing (cont.)
Reactive and Partial Direct Marketing
Sell their products mainly through traditional channels
like department stores, discount stores, and
franchises
Ford Case
including dealers as partners is optimal because orders
that are received directly by the automakers may not be
physically fulfilled without the cooperation of dealers
the received orders can then be assigned to the
nearest dealer who owns the desired car in the
inventory
the dealer’s inventory information should be shared by
automakers through a common network
© Prentice Hall, 2000
13
Direct Marketing (cont.)
Reactive and Partial Direct Marketing
Ford’s reactive direct marketing model (procedure)
Then
You the
canOnline
change
Decide
Select
Add
Select
The
Search
Choose
Shopping
options
other
dealer
the
whether
theabrand
option
individual
dealer
the
will
toService
to
accommodate
body
ofcontact
lease
online
package(s)
carstyle
options
System
ororyou
by
truck
buy,the
willbudget,
provide
Pick
Send
Pick
thethe
interior
your
“Vehicle
Apply
favorite
upholstery
for
Summary”
exterior
financing
that paint
suits
to thecolor
your
dealer
taste
to
with
build
a price
with
yourand
the
most
you
and
dealer
aid
availability
with
finalize
comfortable,
that
of
that
you
Payment
aname,
appeals
interests
“Vehicle
most
theofcity,
configuration
desire
the
Calculator
to
useful
you
Summary”
or
you
vehicle
state
customized
you
System
configured
vehicle
Ford supports a pre-owned showroom in the
following way :
Select
Choose
Explore
Enter
aTest
dealership
Confirm
aSearch
drive
Enter
your
Secure
Confirm
leasing
Ford
Print
personal
and
your
Extended
for
the
your
or
you
your
accept
test-drive
inventory
financing
ZIP
delivery
vehicle
order
information
order
code
Service
delivery
and
options
Plan
delivery
© Prentice Hall, 2000
14
Online Customer Service
Provided in conjunction with online sales
Provided to products which are sold offline
Example: service and support homepage
of Hewlett Packard (HP)
By using computer telephone integration
(CTI) technology, the same screen that a
customer sees can be automatically
displayed to the human agent (and vice
versa) who responds to the customer’s call
watching the online data about the customer
© Prentice Hall, 2000
15
Active Electronic Intermediaries
Pure electronic mall
Company’s retailing business exists only on
the Internet
Electronic distributors
take full responsibility of fulfilling orders and
collecting payments
Electronic brokers
assist the search process of finding the
appropriate products and their vendors
Partial electronic mall
Electronic mall as one of existing distribution
channels
© Prentice Hall, 2000
16
Active Electronic Intermediaries (cont.)
Generalized Electronic Intermediaries
Examples : Choice Mall, and iMall
Provide a directory, keyword search engine, message
encryption, optional Web site hosting service and a
common platform of electronic payments
Necessary factors to make shopping successful
Screening quality and reliability for assurance
• customers need a reliable screening capability of quality
and reliability of brands and companies
• e-brokers should create a trusted third party
Competing electronic channels
• several electronic channels help in finding the items
needed
• e-brokers should provide some differentiated attraction
© Prentice Hall, 2000
17
Active Electronic Intermediaries (cont.)
Specialized Electronic Distributors
Cyber Bookstores
Amazon, Barnes and Noble
Cyber CD Stores
Columbia House, Music Boulevard, CD Universe,
and CDNow
Digitized Products and Services Stores
Software, games, CDs, and videos
Cyber Flower Stores
1-800-FLOWERS
© Prentice Hall, 2000
18
Reactive Electronic Department Store
The J.C. Penney Case
The Internet-based
revenue amounts to only 1
Insurance
to 2% of $30.5 billion total
3%
sales of 1997 (3.5% in
1999)
Drug Stores
Updating prices and adding 32%
new items to the electronic
catalogs is convenient and
Catalog
inexpensive
13%
Overcoming the limitations of
paper catalogs without
incurring extra distribution cost
© Prentice Hall, 2000
Internetbased
1%
Department
Stores
51%
19
Reactive Electronic Department Store (cont.)
Electronic Department Stores Worldwide
Marks & Spencer in the U.K., La Redoute in
France, Jusco in Japan, Nordstrom in the U.S.A.,
and Lotte and Hyundai in Korea
Common strategy is finding significant benefits
from merchandising online
Offering electronic service on the Internet is a
supplementary channel of advertisement
By 2000, 3.5% of all U.S. major retailing will be
done online
© Prentice Hall, 2000
20
Regional Shopping Service
Peapod Case
The leading Internet supermarket, providing
consumers with broad product choices and local
delivery services
Provide pictures of items, nutritional contents, past
purchase records
Users: middle and upper class people, some of
whom are single parents, and all of whom are very
busy. Also sick and elderly people or those without
transportation.
$4.95/month membership fee, and $6.95 service free
+ 5% of the purchased amount
= cost of delivery service
© Prentice Hall, 2000
21
Procedures for Internet Shopping :
The Consumer’s Perspective
Preliminary requirement determination to
meet the needs
Search for the available items that can
meet the requirements
Compare the candidate items with
multiple perspectives: specification, price,
delivery date, and other terms and
conditions
© Prentice Hall, 2000
22
Procedures for Internet Shopping :
The Consumer’s Perspective (cont.)
Place an order
Pay the bill
Receive the delivered items and inspect;
possibly while using
Contact the vendor to get service and
support, or to return if disappointed
© Prentice Hall, 2000
23
Aiding Comparison Shopping
Search hypertext files by agents
Search in a web-based database both by
human and software agents within an e-mall
Comparable item retrieval and tabular
comparison
Comparisons over multiple malls
Comparisons as a multiple criteria decision
making
© Prentice Hall, 2000
24
The Impact of EC on Traditional Retailing System
Disintermediation and Re-intermediation
Disintermediation — the removal of organizations or
business process layers responsible for certain
intermediary steps in a given value chain
eliminating the traditional intermediaries, such as
wholesalers, distributors, and retailers, to reduce the
cost
Re-intermediation — the shifting or transfer of the
intermediary functions, rather than the complete
elimination
intermediation such as electronic shopping malls,
directory and search engine service, and comparison
aids using agents creates the role of re-intermediation
© Prentice Hall, 2000
25
The Impact of EC on Traditional
Retailing System (cont.)
Impact on Manufacturer’s Distribution Strategy
Manufacturer’s monopolistic Internet-based
distribution: Levi’s does not allow any one else to sell
the Levi’s product on the Internet (policy changed in
1999).
Coexistence with the dealers: This is the case in car
distribution.
Regionally mixed strategy: Nike sells on the Internet,
but only in the U.S.A.
Mass Customization for Make-to-Order:
Manufacturers have to be adaptive to the customized
orders of ultimate consumers. This means the
manufacturer should be ready for mass customization.
© Prentice Hall, 2000
26
Managerial Issues
From a manufacturer’s point of view:
Fully committed to
direct marketing,
restructuring the
current manufacturing
and distribution systems
OR
© Prentice Hall, 2000
Regard the electronic
store as an additional
channel of distribution
27
Managerial Issues (cont.)
From an intermediary’s point of view:
Commit to the
directory service
OR
Retailing a
specialized breed
of items
For existing retailer in the physical space:
How to transform its business posture to get the
highest possible customer satisfaction at a
minimum operating cost?
© Prentice Hall, 2000
28