Chapter 3 Retailing in Electronic Commerce (E-Tailing)

1. Chapter 3Retailing in Electronic Commerce (E-Tailing) Prentice Hall, 2002

2. Learning Objectives • Define and describe the primary business models of electronic retailing (“e-tailing”) • Discuss various e-tail consumer aids, including comparison-shopping aids • Discuss various e-tail markets, such as groceries, music, cars, and others • Identify the critical success factors of direct marketing and e-tailing, along with mistakes to avoid Prentice Hall, 2002

3. Learning Objectives (cont.) • Identify the principles of “click-and-mortar” strategies for traditional retailers • Describe the issue of disintermediation, reintermediation, and channel conflicts in e-tailing • Identify various managerial issues of concern to e-tailers Prentice Hall, 2002

4. Opening Case: Amazon.com • B2C business model where customers look for a: • Low price • Fast shipment • Good return policy • Helpful customer service Prentice Hall, 2002

5. Opening Case: Amazon.com (cont.) • Largest Bookstore in the world • Offers millions of items • Books and music • DVDs and videos • Toys and video games • Electronics and software • Home improvement products Prentice Hall, 2002

6. Opening Case: Amazon.com (cont.) • Started business in 1995 • Sales • 1996 = $15.7 million • 2000 = $1.8 billion • Products • 1999 = 5 million titles • 2000 = 13 million books, music, DVD/video titles Prentice Hall, 2002

7. Opening Case: Amazon.com (cont.) • Auctions • Hosts and operates auctions for individuals and small businesses • zShops, Amazon marketplace, Amazon payment processing • Provide the opportunity for small businesses to develop custom storefront • Storefronts are supported by Amazon’s backend order fulfillment processing Prentice Hall, 2002

8. Easy browsing and searching Useful product information Reviews, recommendations, and personalization Broad selection and low prices Secure payment system (1-Click order technology) Gifts department Online community Secured payments Opening Case: Amazon.com (cont.) Features Prentice Hall, 2002

9. Opening Case: Amazon.com (cont.) • Customer relationship management • Creates interesting and informative front-end • Highly automated and efficient back-end support • Personalized service • Return customers are welcomed back by name • Customer wish lists available • E-mails customers purchase recommendations based on their purchasing history Prentice Hall, 2002

10. Opening Case: Amazon.com (cont.) • Financial performance • Overall losses rather than profits • Ability to move into new areas of business should move them toward profitability, but makes money from books • High level of customer service and customer loyalty adds value Prentice Hall, 2002

11. Opening Case: Amazon.com (cont.) • Diversification through business alliances • Online sale of cars - greenlight.com • Online health and beauty aids - drugstore.com • Wireless phones – multiple business partners • Toys - ToysrUs.com Prentice Hall, 2002

12. E-Tailing and B2C Market Growth • Business-to-business (B2B) • Requires precise record keeping, trackability, accountability, and formal contracts, usually with high volume of transactions and large amount payments • Also online retailing • Business-to-consumer (B2C) • Ability to create direct relationships with consumer without intermediaries like distributors, wholesalers, or dealers Prentice Hall, 2002

13. E-Tailing and B2C Market Growth (cont.) • The B2C Market success is derived from: • Offering quality merchandise at good prices • Excellent customer service • Convenience Prentice Hall, 2002

14. E-Tailing and B2C Market Growth (cont.) • Characteristics of goods leading to high online sales volumes • Brand recognition and guarantees • Digitized products • Frequently purchased, inexpensive items • Well-known items with standard specifications Prentice Hall, 2002

15. Consumer Purchase Processand Marketing Plan • Purchase decision process • Prepurchase steps • Awareness of need for purchase • Identify basic need or want • Actual purchase • Establish decision criteria • Seek recommendations and information • Make purchase • Postpurchase steps • Assistance with installation or setup • Online help desks and instruction manuals Prentice Hall, 2002

16. Figure 3-1The Consumer Purchase Decision Process Prentice Hall, 2002

17. Time-starved consumers Shopping avoiders New technologists Time-sensitive materialists or click-and-mortar consumers Traditionalists Hunter-gatherers Brand loyalists Single shoppers Consumer Purchase Processand Marketing Plan (cont.) • Types of online shoppers Prentice Hall, 2002

18. Decision Criteria • Value proposition—customer service, better prices, higher quality • Personal service—treat the customer as a unique individual • Convenience—self-contained site that serves all the customer’s needs • Other criteria—service after the sale Prentice Hall, 2002

19. A Marketing Plan • Influence the consumer’s decision process through the “marketing mix” • Product—portfolio of items available • Price of the products • Promotion of products (advertisements and giveaways) • Packaging and delivery Prentice Hall, 2002

20. Online Purchasing Aids • Shopping portals • Comprehensive portals • Links to many different sellers • Shopping comparison sites • Comparison tools are available • Niche oriented • Specialize in a certain line of products (dogtoys.com) • Some collect referral fee only • Others have formal relationships with affiliates Prentice Hall, 2002

21. Online Purchasing Aids (cont.) • Shopbots and agents—tools that scout the Web for specific search criteria requested by consumers • Mysimon.com - best prices on multiple items • AutoBytel.com – cars • Zdnet.com/computershopper – computers • Office.com – office supplies Prentice Hall, 2002

22. Online Purchasing Aids (cont.) • Business ratings sites—sites that rate e-tailers • Bizrate.com—compiles results provided by a network of shoppers • Gomez.com—consumer identifies relative importance of different criteria Prentice Hall, 2002

23. TRUSTe seal of assurance E-tailers pay TRUSTe for use of seal Hope consumers use seal as proxy for actual research about their site BBBOnLine Yearly license fees based on company’s annual revenue Secure Assure Yearly license fees based on company’s annual revenue Ernst and Young Created its own service for auditing e-tailers Offers some guarantee of integrity of business practices Online Purchasing Aids (cont.) Trust verification sites—evaluate and verify trustworthiness and integrity of e-tailers Prentice Hall, 2002

24. Online Purchasing Aids (cont.) • Other shopping tools • Escrow services—3rd party to assure quality • Proper exchange of money and goods • Research information • Payment-processing support • Communities of consumers • Epinions.com—searchable recommendations on products • PriceGrabber.com—comparison shopping Prentice Hall, 2002

25. E-Tailing Business Models • Subscription models: charge monthly or annual subscription fee for service • Transaction fee models: charge service fee based on the level of transaction offered • Advertising-supported models: charge fee to advertisers instead of customers • Sponsorship models: companies sponsor the business through donations (usually supplemental income) Prentice Hall, 2002

26. Figure 3-2Disintermediation in the B2C Supply Chain Source: M. Warkentin, et al. (2000). Used with permission of Dr. Merrill Warkentin. Prentice Hall, 2002

27. E-Tailing Business Models (cont.) • Direct marketing—sell directly to consumers • Manufactures can sell directly to customers • Disintermediation—removal of business process layers in the value chain • Shortens the distribution chain • Eliminates inefficiencies • Shortens delivery time • Builds closer relationships with consumers • Click-and-mortar • Additional marketing channel to the conventional one • Effectively supports build-to-order requests Prentice Hall, 2002

28. E-Tailing Business Models (cont.) • Pure-play e-tailers—sell over the Internet without a physical sales channel • General purpose e-tailers (Amazon.com) • Broad range of products • Large number of consumers • Specialty or niche e-tailers (CatToys.com) • One specific product area • High demand items in the area • Effective practices for customer appeal Prentice Hall, 2002

29. E-Tailing Business Models (cont.) • Traditional retailers with Web sites • Physical store • May include mail-order or catalog sales • Multichannel store operates both • Physical store • E-tail site Prentice Hall, 2002

30. ODDS: Grocery Market Case • On-Demand Delivery Services (ODDS) • Own fleet of delivery vehicles • Regular deliveries (weekly bases) • Delivery within short time period (1 hour or same day) Prentice Hall, 2002

31. ODDS: Grocery Market Case (cont.) • Potential online grocery shoppers • Shopping avoiders • Necessity users—limited by their ability to shop • New technologists • Time-starved consumers • Responsible consumers • Traditionals • Repeat customers • Example: Parknshop in Hong Kong Prentice Hall, 2002

32. Digital Delivery • Digital (“soft”) goods • Music, movies, videos, software, newspapers, magazines, graphics, etc. • Can be delivered in “hard” or “soft” form • Computer program on CD-ROM with owner’s manual and warranty card • Download from Web site after payment Prentice Hall, 2002

33. Table 3-2Digital Goods Prentice Hall, 2002

34. Digital Delivery (cont.) • Napster experience—person-to-person sharing tool • Enables individual users to download music files from each other’s computers • Phenomenal growth of Napster community • New version of its file-swapping software includes a “buy button” linked to CDNow • May be beneficial to overall music sales as individuals easily sample a broader range of music Prentice Hall, 2002

35. Digital Delivery (cont.) • New developments • Custom-publishing music CD sites—collection of personal favorites • Disintermediation of traditional print media • Journals and magazines • Newspapers (e.g., Wall Street Journal) Prentice Hall, 2002

36. Successful Click-and-Mortar Strategies • Click-and-mortar hybrid strategies • Speak with one voice—link all back-end systems to create an integrated customer experience • Empower the customer—powerful channel for service and information • Leverage the channels—offs advantages of each channel to customers from all channels • Return item purchased online at physical store • Order via the Web at the physical store items not available there Prentice Hall, 2002

37. Successful Click-and-MortarStrategies (cont.) • Circuit City Case: transform to click-and-mortar (CircuitCity.com) • Educates customers about features and capabilities of products • Customers can perform powerful searches to find most appropriate products • Offers extensive amount of information on electronics etc., organized very flexibly • Online purchases are smooth, secure and seamless Prentice Hall, 2002

38. Successful Click-and-MortarStrategies (cont.) • Amazon and Toys R Us: alliance of pure-play with traditional retailer • Toys R Us had limited logistics capabilities including distribution centers • Amazon failed in the toy market lacking supplier relationships with toy manufacturers • Alliance allows each partner to leverage each others core strengths • Innovative model still working out problems Prentice Hall, 2002

39. Disintermediation & Reintermediaries • Disintermediation—manufacturer sells directly to consumer • Reintermediaries—new intermediary roles in the digital environment offer new ways to: • Reach new customers • Bring value to customers • Generate revenues Prentice Hall, 2002

40. Channel conflict—members antagonistic over: Incentives Rewards Policies Support Personalization—custom designed marketing plan Tailored to buying patterns Appeal to sense of value Excellent customer service Mass customization Channel Conflict & Personalization Prentice Hall, 2002

41. E-Tailing : Lessons Learned • Profitability—online marginal sales don’t lead to marginal profits • Branding—drive to establish brand can lead to excessive spending • Performance—Web sites need to function in a fast, user-friendly manner • Static design—dynamic sites with rich databases of information appeal most to customers Prentice Hall, 2002

42. Managerial Issues • First-mover advantage or wait and learn • Strategic positioning • Trust • New risk exposure • Financial viability • Successes Prentice Hall, 2002