E-commerce and Store Retailing: Introduction and Issues

1. E-commerce and Store Retailing: Introduction and Issues Charles Steinfield Professor and Chair Department of Telecommunication, Information Studies, & Media Michigan State University

2. E-commerce has come a long way! Amazon.com in 1995

3. Amazon today…

4. Tracking e-commerce growth Source: U.S. Census Bureau: www.census.gov/estats

5. US e-commerce totals in 2007 Summing quarterly estimates from last full year in Commerce’s most recent e-stat report.

6. If e-commerce only 3% of total retail, is it an important channel alternative? Yes! • Steady increase over past decade • Higher rate of growth than other retail • Underestimates overall influence • One report: 92% research online before buying • Some product types heavily impacted

7. Comparing growth rates e-commerce total retail Summing quarterly estimates from Commerce Dept. estats

8. Estimates and forecasts of e-commerce influences on purchases Source: Forrester Research, via Shoplocal.com

9. Differential Impact by Type of Product Source: Dougal M. Casey, Development Metrics Consulting

10. Early views on e-commerce • Emphasis on channel characteristics predicted superiority of e-commerce over traditional retail formats • 24x7 availability • Lower brick and mortar investment • Automation - lower labor costs • Deeper selection, without inventory holding costs • Pricing flexibility - ability to respond to market demand more quickly (lower menu costs) • Potential for almost infinite depth of information • etc.

11. Later view: complementarities between on and offline channels • Traditional retailers could capitalize on synergies between online and offline retailing • Started flocking online by end of 1990s, but many tried to beat the dot coms at their own game • Did not pursue integrated multichannel strategies, but rather a parallel e-commerce approach • Was this rational channel use?

12. Synergy vs. parallel strategy for e-commerce Synergy Pre-Purchase Purchase Post-Purchase Physical Virtual Parallel Pre-Purchase Purchase Post-Purchase Physical Virtual

13. We started examining multi-channel retailers - US and abroad • Initial focus on high profile cases - firms in a variety of sectors explicitly pursuing a multichannel approach • Highlighting: • Sources of synergy • Benefits • Management strategies

14. Sources of synergy • Leverage complementary assets • physical infrastructure • organizational infrastructure - business operations • marketing and sales force • people who know the product • common buyers and suppliers

15. Types of Benefits/Advantages • Cost reductions • inventory reduction • labor: reduce cost of providing routine services • save on distribution costs • lower costs to advertise, promote specials • Trust • use of physical store for pickup and payment • community focus • emphasize brand name • Value adding services • inventory expansion • “on-demand” production, build to order • mobile ordering and notification • Market extension • serve new markets - home bound, new geographic area, new products

16. But had to proactively manage for synergy - avoid channel conflict • Goal aligning strategies • Creating consensus • Attention to indirect benefits • Focus on existing customer base and communities where firm has physical presence • Coordination and control strategies • Improving channel interoperability • Incentive schemes that foster cooperation • Active cross-promotion between channels • Use of each channel’s strengths by specializing services • Expand capabilities • Alliances • Affiliates

17. More recently • Multichannel retailers appear to be catching on with shoppers - at least for larger chains • Strategies for integrating online and offline growing more sophisticated • Perhaps a new opportunity to study channel choice?

19. Current example of a strong “click and mortar” approach: Best Buy

24. What about the general population of retail firms? Are they effectively integrating online and offline channels? • Acquired sample of approx. 3100 firms in 9 retail sectors - spring of 2002 • Searched for any form of web presence: found 1689 (54%) • After cleaning, 979 active retail Web sites found (31.5%) • Examined web presence for evidence of click and mortar strategy

25. Sample * in USD millions

26. Content Analysis Categories

27. Proportion of Sites With Each Feature } Simple info } Real integration

28. Click and mortar applications not very sophisticated

29. A simple click and mortar index note: since address and phone were universal, they were not included in the index

30. Differences by Sector

31. Going forward: click and mortar aided by other players, technologies • Shoplocal, other location based services • capture location from IP address, tailor offer • Mobile devices - GPS, bar code readers in camera phones, comparison shopping apps. • In-store technologies - smart carts, smart shelves, RFID • Social media • online social networks can be tied to location • harness peer influence

34. 2D Bar Codes (QR codes) • Let window shoppers connect to info, online shopping • Or connect from ad in paper, magazine, or street poster • Call in to customer service, tech support, or other line

35. RFID store applications • smart dressing rooms • smart shelves • checkout services • anti-theft • smart shopping carts

38. Revisiting topic of channel choice • People are using multiple channels to shop • Not a simple single channel choice – have to look at sets of interactions to explore use of several channels to complete a task • Need to look at joint channel synergies to explain choices • Social influences becoming implicated in complex ways • Recommender systems, reviews, social network sites • New technologies extending reach, blurring online and offline boundaries • Pervasive networks and mobile devices and applications • Critical choices by retailers – supply channel choices: • Or lose their customers • Need to rethink role of physical outlet – design with e-commerce in mind • Emphasize online services, applications that continue to give people a reason to visit the physical outlet