Business to Consumer Retail Commerce

1. Business to ConsumerRetail Commerce Objects: Understanding the consumer Customer acquisition and retention strategy Order fulfillment Competency Channel conflict Economic framework to formulate strategy

2. The online consumer Once your client is on the Internet, he is only a mouse-click away from your competitor, and more and more financial sites, search engines and portals will be pushing competing products at him. That, too, will squeeze margins……. Source: Online Finance, May 2000

3. What Type Of E-Commerce Sites Are Showing The Most And The Least Growth?Growth Index for Shopping Sites Travel Auctions Books/Music/Movies Flowers/Gifts/Greetings Apparel Toys

4. Top 10 Shopping Sites Source: Media Metrix % Reach of Top U.S. Shopping Sites - U.S. September 1999

5. Value proposition • The seven C’s • Content • Context • Community • Connectivity • Commerce • Cost • Customer Service

6. Economic framework • Consumer surplus • Producer surplus • Switching costs and transaction costs • Network effects • Demand side • Scale economies • Supply side • Market tipping

7. Customer acquisition strategy • Advertising • Viral marketing • Referrals through portals and comparison search engines

8. “Online Brokerage” Banner Ads • If we were to go a search engines and type in “online brokerage”, what banner ads would be displayed • This service is performed by www.bannerstake.com

9. “Viral Marketing” • Hotmail places a small “ad” at the bottom of every e-mail message automatically, whether the sender wanted it there or not • As people see the “ad” they click and may themselves become subscribers • Hotmail signed up 12m users with a total marketing budget of $50,000;

10. Microsoft buys Hotmail for $385 million • Email is the “killer-app” of the Internet, everybody has to have it • After the buyout, one-quarter of Hotmail’s 60 employees became instant millionaires • 10 million subscribers • This would double MSN’s 2 million paying subscribers, an increase its advertising revenues, but more importantly help position it to become a major portal Source: Business Week, Jan 19, 1998 • After effects: • Rocketmail sold out to Yahoo! in Oct 1998 • As of Dec 1999 hotmail had 40m subscribers

12. Product manager sells one product at a time to as many customers as possible Differentiate his products Acquire a constant stream of new customers Concentrates on economies of scales Sell as many products as possible to one customer at a time Differentiate his customer Tries to get a constant stream of business from current customers Concentrates on economies of scope Comparing Mass and1to1 Marketing Peppers and Rogers, The One to One Future

13. Key Points for 1 to 1 Systems • Identify Customers • Differentiate amongst them • Interact with them • Customize your product or service to meet each customer’s needs

14. Retention Strategies • Personalization • Increase utility • Increase switching costs • e.g., custom recommendation systems on web page and email, custom best seller lists • High quality self service • Decrease transaction costs • e.g., 1-click ordering • Community • Increase utility to user and build barriers since difficult to replicate community content • e.g., reviews on Amazon (implicit), geocities on Yahoo! (explicit)

15. Amazon: E-tailer to Portal

16. Consumer decision model • Consumers want to maximize their own surplus from trade Consumer Surplus = Product Utility - Price paid Transaction Costs • Make your product more attractive by Delivering better quality Reducing price Reducing consumer’s transaction costs

17. New Yorker, 5 July 1993, p. 61

18. Target marketing Http://www.moreinfo.com/au.cranlerma/fol2.htm

19. Managing Price Changes

20. Decision model • Revenues from sales • zshops • hosting of store fronts • commissions from zshop sales • Leveraging the customer database • 20 million 1 click customers • Leveraging order fulfillment competency • co-location of goods in Amazon warehouses

21. Managing physical and online channels • Clicks and Bricks • Barnes and Noble • bn.com -- online channel • barnes and noble -- physical book stores • Factors • leveraging physical presence • returns, promoting virtual and real communities, customer relationship management, location specific services • Cannibalization • Customers switching from one channel to another • tax policy regarding physical presence

22. Paradigm shifts in technology • E-books • Books encoded in computer-readable format • Players: Microsoft, content creators, retailers • Digital goods have fundamentally different cost structures • Low and constant marginal costs and no capacity constraints that limit number of copies that can be made • Supply side economies of scale • Demand side network effects driven by number of installed e-book readers available with consumers (role of platform in defining strategy) • Fast printing and binding technology • Removes any inventory constraint faced by physical stores

23. Auction platform provider

25. Business model • Listing fees from seller • percentage of transactions • from sellers • from buyers • The larger the number of auctions conducted, the better. This is a network effect • When the marginal cost of customer acquisition decreases, we have market tipping.

26. Differences between physical and digital dot coms • When order fulfillment processes are purely digital, the cost structures and scalability are considerably different from dot coms that use physical order fulfillment processes • Yahoo! And Ebay are digital dot coms

27. Review • Understand the online consumer • Understand the economic basis for customer acquisition and retention strategies • Focus on network effects • Use these strategies to achieve tipping