CHAPTER 8 e-Tailing

1. CHAPTER 8e-Tailing • Overview: • Understand what e-tailing is • Estimate size & potential of S.A. e-tailing • Understand drivers and impediments to e-commerce • See how the Internet can be used by e-tailers • Determine which products are better suited to the internet • Appreciate different types of e-tailing business models • Reflect upon disintermediation and re-intermediation • Understand consumer issues that are relevant to e-tailers • Appreciate role of trust in e-tailer transactions • Evaluate role of service quality in e-tail environment • Apply pillars of retailing to e-tailing

2. What is online retailing? • Focus is on Statistics South Africa definition of retail trade: “the resale (sale without transformation) of new and used goods and products to individuals/the general public for household use” • Online retailers are defined as “those retailers who use the tools of the Internet, whether they be email-based or web-based, for any or all aspects of sales, that is negotiation, confirmation, authorisation and conclusion of sale of tangible, physical goods.” • Business to consumer markets and to the sale of tangible physical goods. • e-Tailers can outsource certain aspects of sales

3. Size and potential of S.A. environment • S.A. offline retail market worth R173 billion (2000) and R188 billion (2001) • Online S.A. market worth R84 million (2000) and R162 million (2001)= between 0.05% and 0.1% of total retail sales. • American online retail was 1% of total retail market= $31 billion in sales. • S.A. has problem of online access and lack of access to credit cards. • However, S.A. e-tailers can cater to niche market of high-middle income group. • S.A. goods can also target techno-savvy international markets

4. Advantages of Internet for retailers and e-tailers • Cost • Flexible physical location and reach: • Larger variety of goods and wide inventory • Flexible time: 24/7 • Providing goods • Greater communication ability • Consumer data collection through cookies and web usage • Customers avoid unpleasant sales environments • Promotional capabilities online • Dynamic pricing (see chapter 6)

5. Disadvantages of the Internet for retailers and e-tailers • Cost: maintenance and sales service • Size of the market • Fulfillment problems: Slow deliveries • Payment and security concerns • No physical immediacy • Lack of sensory appreciaton of product • Lack of sales persons and personal service • Lack of social environment • Stranded assets • Cost of customer acquisition • Techonological issues: South African users pay high costs for Internet usage. • Availability of a number of credit facilities offline • Difficulty in return of goods

6. Uses of the Internet for retail • Sale of goods • Ordering goods • Communication with suppliers and customers • Market research • Promotional tool

7. Product consideration when setting up an e-tailer • Not all products can be sold online • Goods high in search and credence qualities do well on the Internet, these are: • Information rich products • Product evaluation without personal interact or product trial • Value to weight ratio • Products easy to customise • Products with widely dispersed target markets • Products usually sold in bricks ‘n mortar environments • Replenishment-driven goods • Convenience goods • Speciality goods • The culture of direct marketing

10. Types of Internet retail business models • Internet retail business models can be classified in several ways: • The degree to which the retailer is online • Pure play e-tailers: have only one retailing channel- the Internet • Clicks ‘n bricks (multichannel retailers): e-tailers that are also offline retailers • Catalogue retailers • Bricks ‘n mortar stores: physical stores

11. Types of Internet retail business models • The variety of goods on offer: horizontal or vertical focus • Stand-alone websites and cybermalls: the degree to which e-tailers group with others to market their online presence and support each other through a digital mall • Manufacturers dealing directly and e-tailers as intermediaries: manufacturers can deal directly with the public.

12. Intermediation • There was speculation that the Internet would eliminate intRermediaries in the supply chain. • The process of shortening the supply chain is known as disintermediation • New intermediaries often arise to facilitate the shortened supply chain. This is known as re-intermediation • Re-intermediation means that the intermediary function is shifted rather than completely eliminated.

13. Manufacturer Manufacturer Manufacturer Wholesaler Electronic Intermediaries Disintermediation Distributor Retailer Consumers Consumers Consumers Traditional distribution system Direct Marketing through Internet Electronic Intermediaries

14. Consumer Issues • There are a number of consumer issues that are important to Internet retailers. • Technical issues are important as they replace the conventional retail store ambience: • Access speed • Speed of navigation and downloading • Network security issues • Bandwidth • Access restrictions

15. Consumer Issues (contd) • Consumer individual characteristics • Higher educated, younger and have higher household incomes. In the U.S. the Internet is reaching most of the population – not SA • Consumer resources, knowledge, beliefs, values and attitudes affect consumer computer self-efficacy. • Self-efficacy influences adoption of online behaviour • Even if consumers have the necessary facilities to use the Internet, they need computer skills • E-tailers can help by using online and offline media, advertising security issues. • Consumers can be overwhelmed by the information overload so e-tailers must make their sites easily navigable

16. Consumer Issues (contd) • Shopping experience • Live entertainment is not easily replicated online • How to make the surfing experience pleasant • Internet communities can be built around the brand or product lines i.e. chat-rooms encourage conversation • Online browsers cannot be treated equally: Direct purchasers who purchase right away online • Search and deliberation buyers who search for purchases that they do eventually intend to buy • Hedonic browsers who are Internet surfers engaged in electronic window shopping • Knowledge builders who often engage in ongoing searches to improve their knowledge of the market or of a particular product area. Opinion leaders would engage in such behaviour

17. Trustworthiness of e-tailer • Ability • Integrity • benevolence The role of trust • Trustworthiness of Internet • Shopping medium • Technical competence • Reliability • Understanding of medium • Individual trust propensity • Consumer demographics • Personality characteristics • Clue seeking Consumer trust in Internet shopping • Contextual factors • Effectiveness of third party certification • Effectiveness of security infrastructure • Current media reportage • Other factors • Size • Branding • Presence of physical store

18. The role of trust • Internet represents risk: • cannot monitor the safety and security of sending personal and financial information • cannot physically check the quality of the products • do not always know who the other party is • do not always know the physical location of the other party • Purchasers (not sellers) incur nearly all of the risks • 3 main factors influence consumer trust in Internet shopping: • Trustworthiness of e-tailer • Trustworthiness of Internet shopping medium • Contextual factors • Minor factors like size, branding, and the presence of a physical store

19. Service qualityKey dimensions of Internet service quality

20. The pillars of retailing • Solving customer’s problems • Treating customers with respect • Connecting with customers’ emotions • Setting the fairest (not the lowest) price • Saving your customers’ time