Internet Strategies

1. Internet Strategies Chapter 3

2. Internet Marketing and Operations Advantages • Better products and services • Interactive games and software; interactive maps • More intelligent products and services • Link past purchases with new products and alert potentially interested customers • Lower Prices • Presumed lower cost structure • Ease of comparison shopping • Unlimited retail space Chapter 3 - Internet Strategies 1

3. Differential Cost Drivers of Internet and Traditional Firms • Bricks: The cost of maintaining physicalstores is lower for internet firms • Taxes: Internet sales are exempt from sales taxes • Inventory and Personnel: Internet sales have a significant advantage • Logistics: Internet firms are at a disadvantage Chapter 3 - Internet Strategies 2

4. Inventory • Required stocking levels are related to the service level desired and the variance in demand for a given product • For individual stores to have sufficient safety stock: • For a central location to have sufficient safety stock: Chapter 3 - Internet Strategies 3

5. Inventory Stocking Example • Assume the following about sales of “Make Millions at Home” at SuperBooks: • 500 stores • Mean sales of 20 copies per day • Standard deviation of 5. • Service levels of 95% • Number of books sold: 500*20 = 10,000 • Safety stock required: 1.645*5*500=4113 • With a single warehouse linked to a website • Safety stock required: Chapter 3 - Internet Strategies 4

6. Personnel • The effect on personnel is similar to that of inventory stocking • Fewer people are required in a centralized system like a website or telephone bank than in decentralized systems • The math will be covered in Chapter 11 • Utilization efficiencies lower the number of people required in a centralized environment Chapter 3 - Internet Strategies 5

7. Logistics • Distribution offers traditional retailers a cost advantage • Shipping costs on a per unit basis are much higher for an internet firm that ships individual orders directly to consumers Traditional Systems Internet Systems Central Warehouses Distribution Centers Retail Outlets Customers Chapter 3 - Internet Strategies 6

8. Logistics • Reverse logistics is a far larger problem in an internet environment • Return rates can approach 30% for internet retailers • Retailers have a “product perception” advantage as consumers are able to view and touch merchandise prior to the sale • Items returned in an internet environment cannot easily be put back on the shelves, rather they are shipped back to the merchant and restocked in a vast warehouse Chapter 3 - Internet Strategies 7

9. Strategies for Mixed Traditional & Internet Retailers • Integrating the back-office of traditional and retail businesses is challenging • Warehouse format: pallets/forklifts/wide aisles vs. pick-and-pack, narrow aisles • Shipping: bulk vs. individual orders Chapter 3 - Internet Strategies 8

10. Assessmentof Strategies • Dedicated Systems • Warehouse systems are separate for catalog/internet vs. retail side (examples include JCPenny) • May include outsourcing Internet orders to a third party firm (examples include Wal-Mart, Macy’s and Bloomingdales) • Disadvantages of both strategies include excess inventory and excess distribution costs Chapter 3 - Internet Strategies 9

11. Assessment of Strategies • Professional Shopper • A store employee walks the retail outlet to pick the order • Disadvantages • Prices must be retail + shipping and handling • Phantom stock-outs • High cost of order fulfillment Chapter 3 - Internet Strategies 10

12. Assessment of Strategies • Cost Minimizers • Orders are picked individually, but goods are combined and sent on dedicated trucks • Transportation may be shared with other retailers • Advantages • Cost effective • Disadvantages • Time consuming for customer who may have to wait for order Chapter 3 - Internet Strategies 11

13. Assessment of Strategies • Transportation Sharing • Internet orders are shipped to retail outlets with the retailers regular suppliers; customers pick them up in the retail outlet • Example: JCPenney and 7-Eleven of Japan • Advantages • Eliminates problems of the “last mile” • Disadvantages • Inconvenient for the customer Chapter 3 - Internet Strategies 12

14. High Low Bulk distribution center Break-bulk distribution center Flagship retail store Retail stores Contiguous distribution center Dedicated distribution center Bulk Shipments Individual Shipments Customer pickup at retail store/Retail store order pick Customer pickup at retail store/Delivery from distribution center Bulk from distribution center to general area/individual delivery to home Shipping direct to customer home Level of integration in order picking and delivery Inventory Segregation: Where Internet Order Picking Occurs Options for Delivering Internet Orders Chapter 3 - Internet Strategies 13

15. Customer Service and the Internet • In the last 5 years customer satisfaction has declined • Companies have implemented cost-saving automated technologies without considering customer satisfaction • Internet customer service is terrible • 37% never receive a response to e-mails • 90% of consumers would prefer live support, 1% of retailers have live support • 67% of all shoppers abandon shopping carts Chapter 3 - Internet Strategies 14

16. Cost of Service Transactions Chapter 3 - Internet Strategies 15

17. Internet Service Design • Product characteristics • Customization level, complexity, customer knowledge, capacity • Process characteristics • Technology and task • Touch points • Interaction between customers, employees and systems Chapter 3 - Internet Strategies 16

18. Technology Customer Performance Product Task Employees Service Design Model Product Process Touch point Outcome Chapter 3 - Internet Strategies 17

19. Product • The product dictates what type of activity will happen on the internet • E-commerce vs. e-service • Customization • Is contact with a real person required? • Can the internet facilitate service inquiries? • Is loyalty the goal? • Product complexity and product knowledge • Example: technical support for novices vs. experienced users Chapter 3 - Internet Strategies 18

20. Transaction Systems • Billing • Shipping • Receiving • Distribution & Fulfillment Systems • Inventory • Distribution • Tracking • Information Systems • Data • Supporting Hardware • Supporting Software • Knowledge Systems • Capture • Organization • Access • Use (Selling & Monitoring) Processes Back-Office Processes • Monitored Discussion Forums • Call-back Buttons • Real-time chat • VOIP • Language Translation • Voice Recognition Front Office Processes • Interaction Systems • Status Checking • FAQ, FUP, Scripting, Keyword Search • Wizards • Bulletin Boards Chapter 3 - Internet Strategies 19

21. Touch Points • Match customer tasks with appropriate touch points. • Complaints: phone • Sales: internet, live chats • Balance inquiries: internet, automated phone system • Give customers options based on their preferences for contacting the company • Customer Contact Centers (CCC’s) Chapter 3 - Internet Strategies 20

22. Outcomes • Measures of performance include the following: • Employee satisfaction • Customer satisfaction • Response times • Form (greeting, language, offering additional help) • Employee knowledge • Customer regard • Intention for repeat encounter Chapter 3 - Internet Strategies 21