CHAPTER 8 eTailing

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CHAPTER 8e-Tailing

• Overview
• Understand what e-tailing is
• Estimate size potential of S.A. e-tailing
• Understand drivers and impediments to
• e-commerce
• See how the Internet can be used by e-tailers
• Determine which products are better suited to the
  internet
• Appreciate different types of e-tailing business
  models
• Reflect upon disintermediation and
  re-intermediation
• Understand consumer issues that are relevant to
  e-tailers
• Appreciate role of trust in e-tailer transactions
• Evaluate role of service quality in e-tail
  environment
• Apply pillars of retailing to e-tailing

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What is online retailing?

• Focus is on Statistics South Africa definition of
  retail trade the resale (sale without
  transformation) of new and used goods and
  products to individuals/the general public for
  household use
• Online retailers are defined as those retailers
  who use the tools of the Internet, whether they
  be email-based or web-based, for any or all
  aspects of sales, that is negotiation,
  confirmation, authorisation and conclusion of
  sale of tangible, physical goods.
• Business to consumer markets and to the sale of
  tangible physical goods.
• e-Tailers can outsource certain aspects of sales

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Size and potential of S.A. environment

• S.A. offline retail market worth R173 billion
  (2000) and R188 billion (2001)
• Online S.A. market worth R84 million (2000) and
  R162 million (2001) between 0.05 and 0.1 of
  total retail sales.
• American online retail was 1 of total retail
  market 31 billion in sales.
• S.A. has problem of online access and lack of
  access to credit cards.
• However, S.A. e-tailers can cater to niche market
  of high-middle income group.
• S.A. goods can also target techno-savvy
  international markets

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Advantages of Internet for retailers and e-tailers

• Cost
• Flexible physical location and reach
• Larger variety of goods and wide inventory
• Flexible time 24/7
• Providing goods
• Greater communication ability
• Consumer data collection through cookies and web
  usage
• Customers avoid unpleasant sales environments
• Promotional capabilities online
• Dynamic pricing (see chapter 6)

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Disadvantages of the Internet for retailers and
e-tailers

• Cost maintenance and sales service
• Size of the market
• Fulfillment problems Slow deliveries
• Payment and security concerns
• No physical immediacy
• Lack of sensory appreciaton of product
• Lack of sales persons and personal service
• Lack of social environment
• Stranded assets
• Cost of customer acquisition
• Techonological issues South African users pay
  high costs for Internet usage.
• Availability of a number of credit facilities
  offline
• Difficulty in return of goods

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Uses of the Internet for retail

• Sale of goods
• Ordering goods
• Communication with suppliers and customers
• Market research
• Promotional tool

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Product consideration when setting up an e-tailer

• Not all products can be sold online
• Goods high in search and credence qualities do
  well on the Internet, these are
• Information rich products
• Product evaluation without personal interact or
  product trial
• Value to weight ratio
• Products easy to customise
• Products with widely dispersed target markets
• Products usually sold in bricks n mortar
  environments
• Replenishment-driven goods
• Convenience goods
• Speciality goods
• The culture of direct marketing

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Types of Internet retail business models

• Internet retail business models can be classified
  in several ways
• The degree to which the retailer is online
• Pure play e-tailers have only one retailing
  channel- the Internet
• Clicks n bricks (multichannel retailers)
  e-tailers that are also offline retailers
• Catalogue retailers
• Bricks n mortar stores physical stores

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Types of Internet retail business models

• The variety of goods on offer horizontal or
  vertical focus
• Stand-alone websites and cybermalls the degree
  to which e-tailers group with others to market
  their online presence and support each other
  through a digital mall
• Manufacturers dealing directly and e-tailers as
  intermediaries manufacturers can deal directly
  with the public.

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Intermediation

• There was speculation that the Internet would
  eliminate intRermediaries in the supply chain.
• The process of shortening the supply chain is
  known as disintermediation
• New intermediaries often arise to facilitate the
  shortened supply chain. This is known as
  re-intermediation
• Re-intermediation means that the intermediary
  function is shifted rather than completely
  eliminated.

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Manufacturer
Manufacturer
Manufacturer
Wholesaler
Electronic Intermediaries
Disintermediation
Distributor
Retailer
Consumers
Consumers
Consumers
Traditional distribution system
Direct Marketing through Internet
Electronic Intermediaries
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Consumer Issues

• There are a number of consumer issues that are
  important to Internet retailers.
• Technical issues are important as they replace
  the conventional retail store ambience
• Access speed
• Speed of navigation and downloading
• Network security issues
• Bandwidth
• Access restrictions

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Consumer Issues (contd)

• Consumer individual characteristics
• Higher educated, younger and have higher
  household incomes. In the U.S. the Internet is
  reaching most of the population not SA
• Consumer resources, knowledge, beliefs, values
  and attitudes affect consumer computer
  self-efficacy.
• Self-efficacy influences adoption of online
  behaviour
• Even if consumers have the necessary facilities
  to use the Internet, they need computer skills
• E-tailers can help by using online and offline
  media, advertising security issues.
• Consumers can be overwhelmed by the information
  overload so e-tailers must make their sites
  easily navigable

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Consumer Issues (contd)

• Shopping experience
• Live entertainment is not easily replicated
  online
• How to make the surfing experience pleasant
• Internet communities can be built around the
  brand or product lines i.e. chat-rooms encourage
  conversation
• Online browsers cannot be treated equally Direct
  purchasers who purchase right away online
• Search and deliberation buyers who search for
  purchases that they do eventually intend to buy
• Hedonic browsers who are Internet surfers engaged
  in electronic window shopping
• Knowledge builders who often engage in ongoing
  searches to improve their knowledge of the market
  or of a particular product area. Opinion leaders
  would engage in such behaviour

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The role of trust

• Trustworthiness of e-tailer
• Ability
• Integrity
• benevolence

• Trustworthiness of Internet
• Shopping medium
• Technical competence
• Reliability
• Understanding of medium

• Individual trust propensity
• Consumer demographics
• Personality characteristics
• Clue seeking

Consumer trust in Internet shopping

• Contextual factors
• Effectiveness of third party certification
• Effectiveness of security infrastructure
• Current media reportage

• Other factors
• Size
• Branding
• Presence of physical store

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The role of trust

• Internet represents risk
• cannot monitor the safety and security of sending
  personal and financial information
• cannot physically check the quality of the
  products
• do not always know who the other party is
• do not always know the physical location of the
  other party
• Purchasers (not sellers) incur nearly all of the
  risks
• 3 main factors influence consumer trust in
  Internet shopping
• Trustworthiness of e-tailer
• Trustworthiness of Internet shopping medium
• Contextual factors
• Minor factors like size, branding, and the
  presence of a physical store

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Service qualityKey dimensions of Internet
service quality
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The pillars of retailing

• Solving customers problems
• Treating customers with respect
• Connecting with customers emotions
• Setting the fairest (not the lowest) price
• Saving your customers time