Chapter 3 Retailing in Electronic Commerce (E-Tailing)

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Chapter 3Retailing in Electronic Commerce
(E-Tailing)
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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

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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

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Opening Case Amazon.com

• B2C business model where customers look for a
• Low price
• Fast shipment
• Good return policy
• Helpful customer service

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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

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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

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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 Amazons backend
  order fulfillment processing

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Opening Case Amazon.com (cont.)
Features

• Broad selection and low prices
• Secure payment system (1-Click order technology)
• Gifts department
• Online community
• Secured payments

• Easy browsing and searching
• Useful product information
• Reviews, recommendations, and personalization

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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

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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

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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

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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

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E-Tailing and B2C Market Growth (cont.)

• The B2C Market success is derived from
• Offering quality merchandise at good prices
• Excellent customer service
• Convenience

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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

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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

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Figure 3-1The Consumer Purchase Decision Process
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Consumer Purchase Processand Marketing Plan
(cont.)

• Types of online shoppers

• Traditionalists
• Hunter-gatherers
• Brand loyalists
• Single shoppers

• Time-starved consumers
• Shopping avoiders
• New technologists
• Time-sensitive materialists or click-and-mortar
  consumers

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Decision Criteria

• Value propositioncustomer service, better
  prices, higher quality
• Personal servicetreat the customer as a unique
  individual
• Convenienceself-contained site that serves all
  the customers needs
• Other criteriaservice after the sale

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A Marketing Plan

• Influence the consumers decision process through
  the marketing mix
• Productportfolio of items available
• Price of the products
• Promotion of products (advertisements and
  giveaways)
• Packaging and delivery

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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

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Online Purchasing Aids (cont.)

• Shopbots and agentstools 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

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Online Purchasing Aids (cont.)

• Business ratings sitessites that rate e-tailers
• Bizrate.comcompiles results provided by a
  network of shoppers
• Gomez.comconsumer identifies relative importance
  of different criteria

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Online Purchasing Aids (cont.)
Trust verification sitesevaluate and verify
trustworthiness and integrity of e-tailers

• 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 companys annual
  revenue

• Secure Assure
• Yearly license fees based on companys annual
  revenue
• Ernst and Young
• Created its own service for auditing e-tailers
• Offers some guarantee of integrity of business
  practices

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Online Purchasing Aids (cont.)

• Other shopping tools
• Escrow services3rd party to assure quality
• Proper exchange of money and goods
• Research information
• Payment-processing support
• Communities of consumers
• Epinions.comsearchable recommendations on
  products
• PriceGrabber.comcomparison shopping

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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)

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Figure 3-2Disintermediation in the B2C Supply
Chain
Source M. Warkentin, et al. (2000). Used with
permission of Dr. Merrill Warkentin.
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E-Tailing Business Models (cont.)

• Direct marketingsell directly to consumers
• Manufactures can sell directly to customers
• Disintermediationremoval 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

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E-Tailing Business Models (cont.)

• Pure-play e-tailerssell 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

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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

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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)

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ODDS Grocery Market Case (cont.)

• Potential online grocery shoppers
• Shopping avoiders
• Necessity userslimited by their ability to shop
• New technologists
• Time-starved consumers
• Responsible consumers
• Traditionals
• Repeat customers
• Example Parknshop in Hong Kong

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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 owners manual
  and warranty card
• Download from Web site after payment

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Table 3-2Digital Goods
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Digital Delivery (cont.)

• Napster experienceperson-to-person sharing tool
• Enables individual users to download music files
  from each others 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

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Digital Delivery (cont.)

• New developments
• Custom-publishing music CD sitescollection of
  personal favorites
• Disintermediation of traditional print media
• Journals and magazines
• Newspapers (e.g., Wall Street Journal)

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Successful Click-and-Mortar Strategies

• Click-and-mortar hybrid strategies
• Speak with one voicelink all back-end systems to
  create an integrated customer experience
• Empower the customerpowerful channel for service
  and information
• Leverage the channelsoffs 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

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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

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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

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Disintermediation Reintermediaries

• Disintermediationmanufacturer sells directly to
  consumer
• Reintermediariesnew intermediary roles in the
  digital environment offer new ways to
• Reach new customers
• Bring value to customers
• Generate revenues

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Channel Conflict Personalization

• Channel conflictmembers antagonistic over
• Incentives
• Rewards
• Policies
• Support

• Personalizationcustom designed marketing plan
• Tailored to buying patterns
• Appeal to sense of value
• Excellent customer service
• Mass customization

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E-Tailing Lessons Learned

• Profitabilityonline marginal sales dont lead to
  marginal profits
• Brandingdrive to establish brand can lead to
  excessive spending
• PerformanceWeb sites need to function in a fast,
  user-friendly manner
• Static designdynamic sites with rich databases
  of information appeal most to customers

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Managerial Issues

• First-mover advantage or wait and learn
• Strategic positioning
• Trust
• New risk exposure
• Financial viability
• Successes