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B2C E-commerce in the U.S. will grow to $87 billion by 2003 from $17 billion in 1999

What We Have Learned About B2C Electronic Commerce Dr. Bert Rosenbloom Professor of Marketing and Rauth Chair in Electronic Commerce Management Drexel University, USA B2C E-commerce in the U.S. will grow to $87 billion by 2003 from $17 billion in 1999

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B2C E-commerce in the U.S. will grow to $87 billion by 2003 from $17 billion in 1999

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  1. What We Have Learned About B2C Electronic CommerceDr. Bert RosenbloomProfessor of Marketing and Rauth Chair in Electronic Commerce ManagementDrexel University, USA

  2. B2C E-commerce in the U.S. will grow to $87 billion by 2003 from $17 billion in 1999 B2C E-commerce worldwide will approach $200 billion by 2003

  3. Even though substantial growth will occur, 95% of “pure play” dot-coms are expected to go out of business by 2003 Of those remaining only a small minority will be profitable

  4. Much of the online B2C sales volume will be generated by conventional (bricks and mortar) retailers using the Internet asjust another marketing channelto reach their customers “Clicks and Mortar”

  5. Online Sales (1999)Pure E-tailers vs. Multichannel Retailers Source: (Business Week E-B:2 10/23/000:EB 36)

  6. What have we learned so far about what works and what does not work in B2C E-Commerce? • Let’s take a look...

  7. Real Businesses Still Need to be BuiltThe Dot-Com Formula • First Mover Advantage for quick name recognition • Get maximum number of eyeballs to visit Website • Convert eyeballs to paying customers • Then figure out how to make a business out of it • It Doesn`t Work • Internet is good for communication with existing customers but terrible for attracting new customers

  8. Focus on Customers Not Investors • Dot-coms more interested in attracting investors than customers • Companies become incidental to the stock price • Greater fool theory and momentum investing -- “dumb money” • Huge market caps created -- but little if any customer value developed

  9. Differentiation Crucial for Survival • Online sales of many consumer product categories will grow in excess of 50% annually over the next 2-3 years. (Forrester Research) • Yet • 95% of the world’s dot-com companies will fail during the next two years. (Gartner Group) • Most basic cause of death? • Lack of differentiation - Failure to stand out from the crowd (Business 2.0)

  10. Customer Acquisition Costs Too High • In the U.S. in 1999, e-tailers spent 110% of revenues on marketing • Average cost of acquiring each customer was $84.00 but $200 per customer was not unusual • Expensive TV ads not cost effective • Banner ads are not effective--- little click through • Name recognition and synergy needed from “land-based” retailers (clicks & mortar) • McKinsey & Co. Study -- 4 times higher customer acquisition cost for online vs. offline

  11. Better Website Design Needed • Too often function is sacrificed for flash • Designed by “techies” rather than marketers • Surveys find that 50% of customers go directly to search button to find products • Website design must begin with understanding of consumer behavior • Just 22% of customers who put items in their electronic shopping carts actually purchase; 78% abandon their carts

  12. Merchandising Expertise Vital • Selecting the right products to sell is still an art and a science (cannot escape retailing) • Items with higher gross margins needed for e-commerce • Wider selection creates inventory problems • Amazon.com wrote off $39 million for unsalable merchandise in 1999

  13. Reliable and Efficient Fulfillment Systems Key • Online shoppers expect dependable and quick shipment • Small order fulfillment is expensive especially when labor intensity is high • More automated warehouses needed to increase efficiency and lower costs

  14. Back End at Least as Important as Front End • E-commerce and E-tailing cannot escape fulfillment and logistics • Arthur Andersen study found over 40% of deliveries to customers were late Back End Problem Area (1999 Holiday) % of Consumers Mentioning Untimely Delivery 40% Product out of stock 24% High shipping & handling costs 21% Long shipping time 18% Slow email response 10% ____________________ Source: Jupiter Communications; eMarketer

  15. Customer Service is Crucial • Pure Internet shopping is a myth • Must have actual people (customer service representatives) whom customers can reach easily by telephone and/or e-mail • Lands’ End has 2500 customer service representatives to answer questions by phone or e-mail • Perceived risk of shopping online results in almost 80% of customers not completing purchases online • If just 10% of online abandoned shopping carts could be salvaged through better customer service, over $60 billion in lost sales could be recovered (Datamonitor)

  16. Returns Problem Needs to be Addressed Study conducted by Electron Economy of 60 leading Websites found the following: 80% required customers to pay return shipping 49% provided return postal bags and preaddressed return labels with order 28% required Return Merchandise Authorization (RMA) “Customers did not need permission to purchase an item, so why should they need permission to return it.” (BUSINESS 2.0; 10/10/00:181) • Returns involve “reverse logistics”

  17. Internet Has Not Caused Intense Price Competition • Online Comparison Shopping Services (shopping bots) have not been a major force: • Dealtime.com • BottomDollar.com • PriceScan.com • MySimon.com • Consumers do not use shopping bots regularly • Real-time searches yield slow and unreliable information • Database searches faster but often not timely • Consumers seek other factors: reputation, reliability, • speed, and service

  18. Banner Ads Not EffectiveOnline advertising growing dramatically - from $3.5 billion in 1999 to $16.5 billion by 2005But • Click-through rates now only 0.3% - 0.5% • Far below direct mail response rate of 1% - 3% • Online advertising may need to focus more on brand awareness

  19. Privacy is Becoming a Major Concern • The dark side of e-commerce • The same technology used to cut costs and enhance communication can leave a trail of personal information • “Cookies” -- may provide information consumers do not want revealed • Regulations may emerge which while protecting privacy may limit flexibility of e-commerce

  20. Use “Clicks and Bricks” toCreate Synergy • “Pure plays” not economically viable • Promotional costs too high for pure plays vs. multi-channel firms • (pure play)Etoys 37c in promotion per dollar of sales • (bks. & mtr.)Williams-Sonoma 11c in promotion per dollar of sales • Order processing costs too high for pure plays -- too many “onsies and eachies”

  21. Products Need to be “Internetable” • Physical products cannot be digitized • Physical products have size and weight and take up space • Physical products need to be selected, packed and shipped • Physical products are transported at slow speeds • Internetable products are those that have a high value to weight or size ratio

  22. Clicks-and-Mortar Firms Have the Advantage • Channel Conflict evolving into “Channel Confluence” • Real power of Internet may be as a supplemental channel rather than exclusive channel • Synergy and higher revenue results from offering customers multiple channels

  23. Bricks and Mortar Retailers Here To StayOnline Retail Sales as Percentage of Total Retail Sales Source: Jupiter Research

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