TOPIC 3: ELECTRONIC RETAILING (E-TAILING)
BUSINESS MODELS
3-1
3.1
3.2
3.3
3.4
3.5
3.6
3.7
3.8
E-tailing, its characteristics and business models
Online travel & tourism services and industry impact
Online real estate, insurance and stock trading
Cyberbanking and online personal finance.
On-demand delivery services and e-grocers.
Online delivery of digital products and entertainment.
Online purchase aids & comparison-shopping aids
Critical success factors and problems with e-tailing
and lessons learned
3.9 Reintermediation, channel conflict, and
personalisation in e-tailing.
Module: Competing in the Network Economy
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
Module: Competing in the Network Economy
3-3
Case Study:
: The King of E-Tailing
• 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
Module: Competing in the Network Economy
3-4
Case Study:
: The King of E-Tailing
– 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
Module: Competing in the Network Economy
3-5
Case Study:
: The King of E-Tailing
– 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
Module: Competing in the Network Economy
3-6
Case Study:
: The King of E-Tailing
– Amazon.com is an online leader in CRM
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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
Module: Competing in the Network Economy
3-7
Case Study:
: The King of E-Tailing
– 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
Module: Competing in the Network Economy
3-8
Case Study:
: The King of E-Tailing
• 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
Module: Competing in the Network Economy
3-9
Case Study:
: The King of E-Tailing
• 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
Module: Competing in the Network Economy
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.
Module: Competing in the Network Economy
3-11
3.1: Internet Marketing and E-Tailing
• 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
Module: Competing in the Network Economy
3-12
3.1: Internet Marketing and E-Tailing
What Sells Well on the Internet?
• Computer hardware
and software
• Consumer electronics
• Sporting goods
• Office supplies
• Books and music
• Entertainment
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Toys
Health and beauty products
Apparel and clothing
Jewelry
Cars
Services
Others
Module: Competing in the Network Economy
3-13
3.1: Internet Marketing and E-Tailing
• 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)
Module: Competing in the Network Economy
3-14
3.1: Primary E-Tailing Business Models
• Classification by Distribution Channel
1. 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.
Module: Competing in the Network Economy
3-15
Module: Competing in the Network Economy
3-16
3.1: Classification by Distribution Channel
• 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.
Module: Competing in the Network Economy
3-17
Case Study: Lands’ End
• Lands’ End: How a mail-order company moved online
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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
Module: Competing in the Network Economy
3-18
Case Study: Lands’ End
• Women customers can
build and store a threedimensional 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
• 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.
Module: Competing in the Network Economy
3-19
3.1: Classification by Distribution Channel
• 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.
Module: Competing in the Network Economy
3-20
3.1: Classification by Distribution Channel
• 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.
Module: Competing in the Network Economy
3-21
3.1: Classification by Distribution Channel
• 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).
Module: Competing in the Network Economy
3-22
3.1: Representative B2C Services
• Of the many other B2C services, four of interest are
those that deliver physical products, digital products
and services:
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Postal Services
Services and Products for Adults
Wedding Channels
Gift Registries
Module: Competing in the Network Economy
3-23
Module: Competing in the Network Economy
3-24
3.2: Travel and Tourism Services Online
• Online travel is probably the most successful
commerce implementation
• Online services provided include:
e-
– General information
– Reserving and purchasing tickets, accommodations, and
entertainment
– Travel tips
– Electronic travel magazines
– Fare comparisons
– Travel products store
– Expert opinion
– Frequent-flyer deals
Module: Competing in the Network Economy
3-25
3.2: Travel and Tourism Services Online
• 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)
Module: Competing in the Network Economy
3-26
3.2: Travel and Tourism Services Online
• 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.
Module: Competing in the Network Economy
3-27
3.3: Real Estate, Insurance & Stock Trading Online
• Real Estate Applications
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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.
Module: Competing in the Network Economy
3-28
3.3: Real Estate, Insurance & Stock Trading Online
• 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.
Module: Competing in the Network Economy
3-29
3.3: Real Estate, Insurance & Stock Trading Online
Module: Competing in the Network Economy
3-30
3.3: Real Estate, Insurance & Stock Trading Online
• Investment Information Online
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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)
Module: Competing in the Network Economy
3-31
3.3: Real Estate, Insurance & Stock Trading Online
• Advantages of Trading Stocks Online
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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).
Module: Competing in the Network Economy
3-32
Case Study: Dangers of Online Stocks Trading
• 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
Module: Competing in the Network Economy