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Internet Retailing Strategies for Success in Thin Margin Environment

Explore key strategies for success in internet retailing, including reducing marketing costs, raising prices strategically, and focusing on destination sites with engaging content. Learn about the challenges faced by e-tailers and the importance of multi-channel retailing.

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Internet Retailing Strategies for Success in Thin Margin Environment

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  1. Internet Retailing • Stock prices down • Demands for government regulation/taxation growing • Margins are thin • Supplier relationships testier HED 460

  2. Revenue % 100% COGS % 87% GM% 13% Mkt./Adv. 24% Other op. exp. 23% Tot. Op. exp. 47% Op. Income -33% Revenue % 100% COGS 73% GM% 27% Mkt./Adv. 4% Other op. exp. 18% Tot. Op. exp. 22% Op. Income 4.5% E-retailers vs. bricks HED 460

  3. Internet Retailing • Internet makes everyone a retailer • Internet service providers (ISP’s) • Suppliers as retailers • Channel conflict • Wal*mart and Home Depot • More competition but core retail skills give retailers an edge HED 460

  4. Internet Retailing • Market discipline is king • Etailers must be customer-centric • Business to consumer market models • Individual product auctions (ebay.com) • “name your price” offers (priceline) • Buyer aggregation (mercata.com) HED 460

  5. Internet Retailing • New technology influences • Wireless • Creates new channels of Internet access • New applications in the home and on the road (GPS systems) • Networked home • TV, refrigerator as control centers HED 460

  6. Internet Retailing • The fall out has started • Etailers have closed virtual doors • etoys, pets.com, kozmo.com, webvan • Some have partnered to increase portfolio • Amazon/WaldenBooks, eBay/Paypal, FTD/Flowers Direct • Some have restructured • Some were close to going out of business HED 460

  7. Internet Retailing • Some categories are saturated • Pets • Petopia.com, Petstore,com, Petwarehouse.com, PETsMART.com • Sporting goods HED 460

  8. Internet Retailing Strategies • Reducing marketing expenditures • Using cheaper techniques like email • Dramatic decreases in average online customer acquisition costs • Q4’99 - $71 • Q1’00 - $45 • Q2’00 - $40 • Q3’00 - $20 HED 460

  9. Internet Retailing Strategies • Raising product prices • Being less promotional • Lowering/eliminating shipping charges* HED 460

  10. Internet Retailing Strategies • Destination site • Category focus to focus on all things related to the category • Relevant content • Product reviews • Advice columns • Celebrity interviews • News HED 460

  11. Internet Retailing Strategies • Destination site, cont. • Building community on-line – interaction • Message boards • Chat rooms • Lands’ End, CarsDirect, TechnoScout HED 460

  12. Results of chat • Best for high-price, high-margin products • Used to up-sell, cross-sell, convert • Ave. order increased by 6% at Lands’ End • Ave. order increased from $135 to $170 for TechnoScout (3.5% use chat feature) • Conversion incr. from 2.2% to 3.1% from 2000-2001 • Abandoned shopping carts decreased from 53% to 47% HED 460

  13. Internet Retailing Strategies • Multi-channel retailers • Experience is paying off • Only 2 of top 10 etailing sites 2001 are traditional “pure play” • Pure-play e-tailers are forming alliances with store-based or catalogs HED 460

  14. Amazon.com* Office Depot Staples Gateway Costco BarnesandNoble Buy.com* QVC.com The Spiegel Group JC Penney Top 10 E-tailers 2001(Revenue) HED 460

  15. Question #1 • What percentage of U.S. households have a computer at home? • 66% HED 460

  16. Question #2 • What percentage of U.S. households have a Internet access at home? • 63% • Gap continues to narrow HED 460

  17. Question #3 • What country has the highest percentage of Internet users? • Finland – 58% • Sweden – 44% • Canada – 41% • USA – 37% HED 460

  18. Question #4 • What is it cost to service online customers? • Phone - $33.00 • E-mail - $9.99 • Live Chat - $7.80 • Self-service - $1.17 Forrester Research HED 460

  19. Question #5 • What is the profile of online shoppers? • 39% Upmarket • 66% are younger/single and younger/parents • 53% women shop to save time (41% men) • 56% men shop to save money (40% women) HED 460

  20. Question #6 • What are the 3 attributes of favorite web sites? • Good product selection • Competitive prices • Ease of use HED 460

  21. Question #7 • What is the greatest barrier to online purchasing? • Fear factor - Credit card safety (69%), then privacy (61%) HED 460

  22. Other barriers • Other fears • Returns • Customer service questions answered • Feel factor • Feel, see, try out/on • Prefer shopping at stores HED 460

  23. Try-out/”experience” • Zanybrainy.com – selected toys • 3D interaction to zoom in and out, “use” products (sharperimage.com) • My model (Lands’ End) HED 460

  24. HED 460

  25. Other barriers • Fulfillment factor • Not willing to pay shipping/handling • Don’t want to wait for products • Frustration factor • Difficult to shop online • Completing transaction takes too long HED 460

  26. Question #8 • What is the greatest barrier to online purchasing for clothing? • Inability to try on clothes for fit before purchase (81%) • Unable to feel material quality (45%) • Concern about ease of return (44%) HED 460

  27. The Fit Issue • Virtual models (landsend.com and jcpenney.com) • Fit guides and comparisons (pants@gap.com and eddiebauer.com) HED 460

  28. Question #9 • What is the cause of e-shoppers abandoning their shopping carts? • Excessive shipping costs (1/2) • 47% abandonment rate • Present shipping costs up front HED 460

  29. Question #10 • What is the most frequently purchased online category? • Information-intensive (for sales volume) • Digital cameras/camcorders, PC, Software • Commodities (for conversion rates) • Books, CD’s, women’s hosiery HED 460

  30. Question #11 • Is there a link between # channels shopped and spend per shopper? • Sears data • 2 channels, 2x as likely to shop store and spend 2x more • 3 channels, 3x as likely to shop store and spend 3x more • 30-40% online purch = store pickup (20% buy more in the store when pickup) HED 460

  31. Question #12 • How many Internet users are purchasing online? • 55% (77% browsed/shopped) • Vs. 51% and (75%) last year HED 460

  32. Question #13 • What is the main advantage of being a pure-play e-tailer? • Focused and nimble • What is the main advantage of being a multichannel e-tailer? • Brand name • Synergies HED 460

  33. What has Amazon done right? • Amazon simplifies shopping • Equity built with consumers is saving Amazon with investors • Selection, competitive prices • Ease of navigating site/convenience • Delivery speed and options • Partnerships HED 460

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