Chapter 3
(Class4 22.01.02)
Retailing in Electronic
Commerce (E-Tailing)
modifications by J.Molka-Danielsen
Prentice Hall, 2002
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Learning Objectives
Define and describe the primary business models of
electronic retailing (“e-tailing”)
Discuss various e-tail consumer aids, including
comparison-shopping aids
Discuss various e-tail markets, such as groceries,
music, cars, and others
Identify the critical success factors of direct
marketing and e-tailing, along with mistakes to
avoid
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Learning Objectives (cont.)
Identify the principles of “click-and-mortar”
strategies for traditional retailers
Describe the issue of disintermediation,
reintermediation, and channel conflicts in
e-tailing
Identify various managerial issues of
concern to e-tailers
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Opening Case: Amazon.com
B2C business model where customers look
for a:
Low price
Fast shipment
Good return policy
Helpful customer service
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Opening Case: Amazon.com (cont.)
Largest Bookstore in the world
Offers millions of items
Books and music
DVDs and videos
Toys and video games
Electronics and software
Home improvement products
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Opening Case: Amazon.com (cont.)
Started business in 1995
Sales
1996 = $15.7 million
2000 = $1.8 billion
Products
1999 = 5 million titles
2000 = 13 million books, music, DVD/video
titles
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Opening Case: Amazon.com (cont.)
Auctions
Hosts and operates auctions for individuals and
small businesses
zShops, Amazon marketplace, Amazon payment
processing
Provide the opportunity for small businesses
to develop custom storefront
Storefronts are supported by Amazon’s
backend order fulfillment processing
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Opening Case: Amazon.com (cont.)
Features
Easy browsing and
searching
Useful product
information
Reviews,
recommendations,
and personalization
Broad selection and
low prices
Secure payment
system (1-Click order
technology)
Gifts department
Online community
Secured payments
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Opening Case: Amazon.com (cont.)
Customer relationship management
Creates interesting and informative front-end
Highly automated and efficient back-end support
Personalized service
Return customers are welcomed back by
name
Customer wish lists available
E-mails customers purchase
recommendations based on their purchasing
history
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Opening Case: Amazon.com (cont.)
Financial performance
Overall losses rather than profits
Ability to move into new areas of business
should move them toward profitability, but
makes money from books
High level of customer service and customer
loyalty adds value
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Opening Case: Amazon.com (cont.)
Diversification through business alliances
Online sale of cars - greenlight.com
Online health and beauty aids - drugstore.com
Wireless phones – multiple business partners
Toys - ToysrUs.com
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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
payments
Also online retailing
Business-to-consumer (B2C)
Ability to create direct relationships with consumer
without intermediaries like distributors,
wholesalers, or dealers
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Case Study From HSM Survey: Motivation for
broadband networks
High capacity telecom-networks are essential to
support services that require the exchange of complex
multimedia documents and for integrating many B2C
and B2B services.
What types of Information Services do
businesses want to participate in?
Video conferencing, working from home, remote
education, group meetings, etc.
Announcing products, taking orders, process
payments, track orders, integrate with order
replacement systems, integrate with partner
trading systems, etc.
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Geographical distribution of business respondents in Møre
and Romsdal.
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The Survey
Do businesses feel they need broadband?
Do they have plans to implement broadband technology?
Are businesses satisfied with their network access
technology?
What do businesses expect to do with it,
broadband technology as it relates to
their business activities?
How do companies access their future use
of e-business technology?
For this Lecture we examine the last two
questions
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15% of all business
repondents in
Q1 already have
broadband access.
65% of respondents
From Q8 have plans
To get broadband
Within 2-3 years.
Percentage business repondents
Buisness repondents plans to invest in broadband
technology
40
34
35
30
28
27
25
20
15
10
9
5
0
Dette året
Neste år
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Om 2-3 år
Vet ikke
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Company participation in traditional business activities.
R+1
R+2
U+1
U+2
R=Rural location, U=Urban location, 1=activities today, 2=activities w ithin 2-3 years
100
60
40
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Other
Videoconferences
Education and
learning
Comminication
with home office
0
Communication
with
subcontractors
20
Information
sharing in the
company
Companies (%)
80
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Company participation in e-business activities
R+1
R+2
U+1
U+2
R=Rural Location, U=Urban location, 1=e-business today, 2=e-business w ithin 2-3 years
100
60
40
20
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What do we learn from the HSM Case Study?
There is a progression for becoming an ebusiness.
E-tailing is not just about B2C activities, but
ties to the businesses back end operations
and. It involves a full range of business
processes, some that are also used in B2B
activities.
E-tailing must be integrated into the
organizations Business Plan.
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E-Tailing and B2C Market Growth (cont.)
The B2C Market success is derived from:
Offering quality merchandise at good prices
Excellent customer service
Convenience
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E-Tailing and B2C Market Growth (cont.)
Characteristics of goods leading to high
online sales volumes
Brand recognition and guarantees
Digitized products
Frequently purchased, inexpensive items
Well-known items with standard specifications
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Consumer Purchase Process
and Marketing Plan
Purchase decision process
Prepurchase steps
Awareness of need for purchase
Identify basic need or want
Actual purchase
Establish decision criteria
Seek recommendations and information
Make purchase
Postpurchase steps
Assistance with installation or setup
Online help desks and instruction manuals
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Figure 3-1
The Consumer Purchase Decision Process
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Consumer Purchase Process
and Marketing Plan (cont.)
Types of online shoppers
Time-starved
consumers
Shopping avoiders
New technologists
Time-sensitive
materialists or clickand-mortar
consumers
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Traditionalists
Hunter-gatherers
Brand loyalists
Single shoppers
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Decision Criteria
Value proposition—customer service, better
prices, higher quality
Personal service—treat the customer as a
unique individual
Convenience—self-contained site that serves
all the customer’s needs
Other criteria—service after the sale
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A Marketing Plan
Influence the consumer’s decision process
through the “marketing mix”
Product—portfolio of items available
Price of the products
Promotion of products (advertisements and
giveaways)
Packaging and delivery
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Online Purchasing Aids
Shopping portals
Comprehensive portals
Links to many different sellers
Shopping comparison sites
Comparison tools are available
Niche oriented
Specialize in a certain line of products
(dogtoys.com)
Some collect referral fee only
Others have formal relationships with
affiliates
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Online Purchasing Aids (cont.)
Shopbots and agents—tools that scout the
Web for specific search criteria requested by
consumers
Mysimon.com - best prices on multiple items
AutoBytel.com – cars
Zdnet.com/computershopper – computers
Office.com – office supplies
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Online Purchasing Aids (cont.)
Business ratings sites—sites that rate e-tailers
Bizrate.com—compiles results provided by a
network of shoppers
Gomez.com—consumer identifies relative
importance of different criteria
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Online Purchasing Aids (cont.)
Trust verification sites—evaluate and verify
trustworthiness and integrity of e-tailers
TRUSTe seal of assurance
E-tailers pay TRUSTe for use
of seal
Hope consumers use seal as
proxy for actual research
about their site
Secure Assure
Yearly license fees based
on company’s annual
revenue
Ernst and Young
BBBOnLine
Yearly license fees based on
company’s annual revenue
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Created its own service for
auditing e-tailers
Offers some guarantee of
integrity of business
practices
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Online Purchasing Aids (cont.)
Other shopping tools
Escrow services—3rd party to assure quality
Proper exchange of money and goods
Research information
Payment-processing support
Communities of consumers
Epinions.com—searchable
recommendations on products
PriceGrabber.com—comparison shopping
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E-Tailing Business Models
Subscription models: charge monthly or
annual subscription fee for service
Transaction fee models: charge service fee
based on the level of transaction offered
Advertising-supported models: charge fee
to advertisers instead of customers
Sponsorship models: companies sponsor
the business through donations (usually
supplemental income)
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Figure 3-2
Disintermediation in the B2C Supply Chain
Source: M. Warkentin, et al. (2000). Used with permission of Dr. Merrill Warkentin.
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E-Tailing Business Models (cont.)
Direct marketing—sell directly to consumers
Manufactures can sell directly to customers
Disintermediation—removal of business
process layers in the value chain
Shortens the distribution chain
Eliminates inefficiencies
Shortens delivery time
Builds closer relationships with consumers
Click-and-mortar
Additional marketing channel to the
conventional one
Effectively supports build-to-order requests
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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 products
Large number of consumers
Specialty or niche e-tailers (CatToys.com)
One specific product area
High demand items in the area
Effective practices for customer appeal
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E-Tailing Business Models (cont.)
Traditional retailers with Web sites
Physical store
May include mail-order or catalog sales
Multichannel store operates both
Physical store
E-tail site
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ODDS: Grocery Market Case
On-Demand Delivery Services (ODDS)
Own fleet of delivery vehicles
Regular deliveries (weekly bases)
Delivery within short time period (1 hour or
same day)
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ODDS: Grocery Market Case (cont.)
Potential online grocery shoppers
Shopping avoiders
Necessity users—limited by their ability to
shop
New technologists
Time-starved consumers
Responsible consumers
Traditionals
Repeat customers
Example: Parknshop in Hong Kong
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Digital Delivery
Digital (“soft”) goods
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 card
Download from Web site after payment
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Table 3-2
Digital Goods
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Digital Delivery (cont.)
Napster experience—person-to-person
sharing tool
Enables individual users to download music
files from each other’s computers
Phenomenal growth of Napster community
New version of its file-swapping software
includes a “buy button” linked to CDNow
May be beneficial to overall music sales as
individuals easily sample a broader range of
music
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Digital Delivery (cont.)
New developments
Custom-publishing music CD sites—collection of
personal favorites
Disintermediation of traditional print media
Journals and magazines
Newspapers (e.g., Wall Street Journal)
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Successful Click-and-Mortar Strategies
Click-and-mortar hybrid strategies
Speak with one voice—link all back-end systems to
create an integrated customer experience
Empower the customer—powerful channel for
service and information
Leverage the channels—offs advantages of each
channel to customers from all channels
Return item purchased online at physical store
Order via the Web at the physical store items
not available there
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Successful Click-and-Mortar
Strategies (cont.)
Circuit City Case: transform to click-andmortar (CircuitCity.com)
Educates customers about features and
capabilities of products
Customers can perform powerful searches to
find most appropriate products
Offers extensive amount of information on
electronics etc., organized very flexibly
Online purchases are smooth, secure and
seamless
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Successful Click-and-Mortar
Strategies (cont.)
Amazon and Toys R Us: alliance of pureplay with traditional retailer
Toys R Us had limited logistics capabilities
including distribution centers
Amazon failed in the toy market lacking
supplier relationships with toy manufacturers
Alliance allows each partner to leverage each
others core strengths
Innovative model still working out problems
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Disintermediation & Reintermediaries
Disintermediation—manufacturer sells
directly to consumer
Reintermediaries—new intermediary roles
in the digital environment offer new ways
to:
Reach new customers
Bring value to customers
Generate revenues
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Channel Conflict & Personalization
Channel conflict—
members antagonistic
over:
Personalization—
custom designed
marketing plan
Incentives
Rewards
Policies
Support
Tailored to buying
patterns
Appeal to sense of
value
Excellent customer
service
Mass customization
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E-Tailing : Lessons Learned
Profitability—online marginal sales don’t
lead to marginal profits
Branding—drive to establish brand can
lead to excessive spending
Performance—Web sites need to function
in a fast, user-friendly manner
Static design—dynamic sites with rich
databases of information appeal most to
customers
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Managerial Issues
First-mover advantage or wait and
learn
Strategic positioning
Trust
New risk exposure
Financial viability
Successes
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