Chapter 2 Retailing in Electronic Commerce

1. Chapter 2Retailing inElectronic Commerce

2. Overview of Electronic Marketing Structure • Business-oriented Electronic Marketing (B2B) • Needs more precise record keeping, trackability, accountability, and formal contracts, usually with high volume of transactions and large amount payments • Consumer-oriented Electronic Marketing (B2C) • Mostly online; on the Internet • Growing offline too, mainly by using smart cards, although it is still experimental

3. Advantages of Electronic Marketing • Direct marketing • Customization • Online customer service • Electronic shopping malls: • Intermediaries (e.g. Internet Mall) • Stores (e.g. Amazon, J.C.Penney Online) • Electronic intermediaries • Global marketing • Customers can order from cyberstores 24 hours a day, 7 days a week from any place in the world

4. Forecast of the B2C Electronic Market Size (Source: OECD, 1997) Forecasting Institutions 1997($ Mil.) 2000 ($ Mil.) IDC 1,000 117,000 VSAComm 48 3,500 VeriFone 350 65,000 Actif Media 436 46,000 Killen & Assoc. 775,000 Yankee 850 144,000 Jupiter 45 580 E-land 450 10,000 EU 228,000 USA 200 EITO 363 200,000 AEA/AU 200 45,000 Hambrecht & Quest 1,170 23,200 Forrester 518 6,579 Mean value 469 134,906

5. Forecast of the B2C Electronic Markets(cont.) • Kinds of items sold (Unit: Millions of U.S. Dollars) Items 1997 2002 Travel 911 11,699 PC hardware 986 6,434 Grocery 63 3,529 Software 85 2,379 Books 152 3,661 Music 37 1,591 Videos 15 575 Toys 2 555 Comsumer electronic 15 792 Health and Beauty 2 1,183 Initial Forecast of B2C Electronic Market Segments

6. Forecast of the B2C Electronic Markets(cont.) • What sells on the Internet? • Items with high brand recognition • Goods that can be transformed to digitized goods like books, music, and video • Items with security guarantee given by highly reliable or known vendors • Relatively cheap items • Repetitively purchased items such as groceries • Commodities with standard specification • Items whose operating procedures can be more effectively demonstrated by a video • Packaged items which are well known to customers and which cannot be opened even when customers physically visit the store

7. Business Models of Electronic Marketing Generalized Mall Vs. Specialized Mall/Store Direct Marketing Manufacturers Vs. Indirect Marketing Manufacturers Full Cybermarketing Vs. Partial Cybermarketing Active Strategic Posture Vs. Reactive Strategic Posture Electronic Distributor Vs. Electronic Broker Global Marketing Vs. Regional Marketing Electronic Mall Vs. Electronic Store Sales Vs. Customer Services

8. Business Models of Electronic Marketing(cont.) • Direct marketing Vs. • Advertisement and distribution of products to customers via Internet without intermediary (e.g. electronic stores) • Indirect marketing • Products are distributed through third-party intermediaries (e.g. e-malls) • Full Cybermarketing Vs. • Product sales only through the Internet (e.g. Amazon) • Partial Cybermarketing • Product sales also through traditional stores (e.g. Barnes & Noble)

9. Business Models of Electronic Marketing(cont.) • Electronic distributor Vs. • An electronic distributor is responsible for order fulfillment and guarantee. (e.g. Dell, Wal-Mart) • Electronic broker • An electronic broker is just introducing suppliers, who deal with the ordered items themselves • Electronic store (e-store) Vs. • Dealing items are handled by a single management • Electronic shopping mall (e-mall) • Dealing items are handled by more than a single electronic store

10. Business Models of Electronic Marketing(cont.) • Proactive strategic posture toward cybermarketing Vs. • a company’s main distribution channel is the Internet; internal management (e.g. inventory and operations management) is focused to affect the benefit of cybermarketing (e.g. Dell) • Reactive strategic posture toward cybermarketing • online distribution channel is just additional to traditional physical distribution channel as the company’s main distribution channel • Global Vs. Regional marketing • Limiting factors: perishable goods, delivery costs, legal boundaries, language • Sales Vs. customer services • Web site use as customer service to reduce call center personnel (e.g. software/ hardware companies)

11. Direct Marketing • Active and full direct Marketing Dell Computer Corporation Case • Founding spirit of dell: telemarketing • Emergence of the Internet: use as direct marketing channel • Astonishingly high growth and returns • 1998:largest manufacturer/ marketer of business PCs, growing the fastest among all major computer system makers • $14 Mil. per day through the Internet (2/99) • Internet sale is complemented by phone,fax, email call center service

12. Direct Marketing (cont.) • Dell’s Critical Success Factors • Advanced web applications (Internet use from customer all the way back through supply chain) • Price competitiveness owing to mass-customization and efficient procurement/ delivery (no change of business strategy necessary) • Database marketing and customer intimacy (learning about customers by watching them use the Web site) • Global reach and value added services at a single contact point (over 10000 service providers, suppliers and customers are related to single contact point)

13. Direct Marketing (cont.) • Dell’s Critical Success Factors (cont.) • High reliability and reputation (unprecedented high no. of awards for performance, reliability, service) • Delivery support (simple configuations in 2-3 days, average in 5 days, complex in 7-10 days, order status information)

14. Direct Marketing (cont.) • Reactive and Partial Direct Marketing • Sell their products mainly through traditional channels like department stores, discount stores, and franchises Ford Case • Internet as additional distribution channel • dealers as partners need to be included (orders may not be physically fulfilled without the cooperation of dealers) • the received orders can then be assigned to the nearest dealer who owns the desired car in the inventory • the dealer’s inventory information should be shared by automakers through a common network

15. Direct Marketing (cont.) • Ford’s reactive direct marketing model (procedure) • Reactive and Partial Direct Marketing Pick the interior upholstery that suits your taste Choose the body style you most desire Select the option package(s) that appeals to you Add other individual options to build your most comfortable, useful customized vehicle Pick your favorite exterior paint color The dealer will contact you with a price and availability of the vehicle you configured Select the brand of car or truck that interests you You can change options to accommodate the budget, and finalize the configuration Decide whether to lease or buy, with the aid of Payment Calculator System Search a dealer online by dealer name, city, or state Send the “Vehicle Summary” to the dealer Apply for financing Then the Online Shopping Service System will provide you with a “Vehicle Summary” • Ford supports a pre-owned showroom in the following way : Test drive and accept delivery Enter your ZIP code Search the inventory Secure your vehicle Enter your personal information Print your order Explore leasing or financing options Confirm your order Confirm you delivery Select a dealership for test-drive and delivery Choose a Ford Extended Service Plan • Dealers are not targeted for elimination but partners

16. Online Customer Service • Provided in conjunction with online sales • Provided to products which are sold offline • Examples: service and support homepage of Hewlett Packard (HP)or Microsoft

17. Active Electronic Intermediaries • Pure electronic mall • Company’s retailing business exists only on the Internet • Electronic distributors • take full responsibility of fulfilling orders and collecting payments (e.g. CDnow, Virtual Vineyard) • Electronic brokers • assist the search process of finding the appropriate products and their vendors (e.g. Internet Mall) • Partial electronic mall • Electronic mall as one of existing distribution channels

18. Active Electronic Intermediaries (cont.) • Generalized Electronic Intermediaries • Examples : Choice Mall,iMall, recently Yahoo, Excite • Provide a • Directory • Keyword search engine • Message encryption • Optional Web site hosting service and • A common platform of electronic payments • Necessary factors to make shopping successful • customers need a reliable screening capability of quality and reliability of brands and companies • Competing electronic channels to find items needed (e-brokers should provide some differentiated attraction)

19. Active Electronic Intermediaries (cont.) • Specialized Electronic Distributors • Cyber Bookstores • Amazon, Barnes & Noble • Cyber CD Stores • Columbia House, Music Boulevard, CD Universe, and CDNow • Digitized Products and Services Stores • Software, games, CDs, and videos • Cyber Flower Stores • 1-800-FLOWERS

20. Reactive Electronic Department Store • Electronic Department Stores Worldwide • Marks & Spencer in the U.K., La Redoute in France, Wal-Mart in the U.S.A. • Common strategy is finding significant benefits from merchandising online (Reduced prices? Reduced shopping time? Convenience Shopping from any place?) • Offering electronic service on the Internet is a supplementary channel of advertisement • By 2000, over 40% of all U.S. major retailing will sell online

21. Procedure for Internet Shopping :The Consumer’s Perspective • Determination of needs (a PC and printer?) • Search for the available items that can meet the requirements (e-stores, e-brokers) • Compare the candidate items with multiple perspectives (product specification, price, delivery date, other terms and conditions) • Place an order • Pay for the goods (credit card with SSL protocol, in Europe also invoice or debit) • Receive the delivered items (by truck or digital) • After-Sales-Service or return of goods

22. Aiding Comparison Shopping • Searching product specific information in search engines (e.g. Altavista, Lycos etc.) • Searching opinions about products (e.g. ciao, epinions) • Search in a web-based database (e.g. MySimon, Comparisonshopping) • Comparable item retrieval and tabular comparison (e.g. CompareNet) • Comparisons over multiple malls

23. The Impact of EC on Traditional Retailing System • Disintermediation and Re-intermediation • Disintermediation — removal of organizations/ business process layers as intermediary steps in a given value chain (wholesalers, distributors, and retailer) to reduce the cost • Re-intermediation —shifting/ transfer rather than complete elimination of intermediary functions, • intermediation such as electronic shopping malls, directory and search engine service, and comparison aids using agents creates the role of re-intermediation

24. The Impact of EC on Traditional Retailing System(cont.) (Disintermediation and Reintermediation by EC) Manufacturers Manufacturers Manufacturers Wholesaler Electronic Intermediaries on the Internet Distributor Disintermediation Retailer Consumers Consumers Consumers Traditional Distr. System Direct Marketing with EC EC with Electronic Intermediaries

25. The Impact of EC on Traditional Retailing System (cont.) • Impact on Manufacturer’s Distribution Strategy • Manufacturer’s monopolistic Internet-based distribution (e.g. until 1999 Levi’s alone did sell Levi’s products on the Internet) • Coexistence with the dealers (e.g. car manufacturer need to keep trad. dealers in car distribution) • Regionally mixed strategy (e.g. Nike sells on the Internet, but only in the U.S.A., physical retailing stores abroad) • Mass Customization for Make-to-Order (Manufacturers have to be adaptive to customized orders of ultimate consumers)