CS5038 The Electronic Society

1
CS5038 The Electronic Society

• 2. A Quick Overview of Electronic Retailing
• B2C Retailing types and ways to succeed
• Consumer Categories
• Consumer Decision Criteria
• Online Purchasing Aids
• E-Tailing Business Models
• Click and Mortar Strategy
• E-tailing Problems
• The middleman problem e.g. travel industry

2
Business-to-Consumer (B2C) Retailing

• Ability to create direct relationships with
  consumer without intermediaries like
  distributors, wholesalers, or dealers
• Brick-and-mortar Traditional offline retailer
• Click-and-mortar offline online presence
• B2C Market success is derived from
• Offering quality merchandise at good prices
• Excellent customer service
• Convenience
• Goods that sell well online
• Brand recognition and guarantees
• Digitized products music, video, software
• Frequently purchased, inexpensive items
• Well-known items with standard specifications
• no need to inspect

3
Dell
Portals, trust sites (2 slides ago)
Prentice Hall, 2002
4
Click and Mortar Strategy

• Channel route to customer (through
  delares/vendors/re-sellers/dealers and
  distributors, or directly (own shop or web-site))
• Channel Conflict
• Any situation where channel members are
  antagonistic due to real or perceived differences
  in incentives, rewards, policies or support
• Levis stopped online direct sales, because
  distributors complained
• Selling off old stock directly to make room for
  fresh models may undercut dealers.
• Have to coordinate parallel channels of
  distribution, and coordinate marketing strategies
  
• e.g., car dealer network online direct sales

5
Click and Mortar Strategy (B)

• Successful Strategies
• Empower the customer 24/7 service and
  information
• Store locators Product information Inventory
  levels
• Speak with one voice integrate back-end systems
  
• Customer gets the same information through
  telephone or webpage
• Leverage the channels use best channel for each
  part of business process
• E.g. order electronically physical sales return.

6
Customers are not all the same!

• Consumer types
• Individual consumers
• Organizational buyers
• Goal of shopping
• Pragmatic buy something useful, cheaply
• Hedonistic have fun
• Personality
• Impulsive buyers purchase quickly
• Patient buyers make some comparisons first
• Analytical buyers do substantial research
  before buying

7
Consumer Categories
19 Social Shoppers enjoy shopping
20 Habit die-hards stuck in their ways
47 want to shop electronically
14 Experimenters ready to try new things
14 Ethicalwill purchase provided it is honest
and pc
17 Convenience responsive to things which save
time or make life easier
16 Value shoppers will purchase where they see
value
Shopping avoider Hunter gatherers ? enjoy
comparison/ search New technologists? because
it's cool
Michael De Kare-Silver
Warning these statistics are probably out of
date!
8
Diffusion of Innovation
A widely-accepted picture of technology adoption
Rogers, Everett M. (1962). Diffusion of
Innovations, Glencoe Free Press.
9
The Long (Fat) Tail
Demand, in units
1000000
Trad. channel cut-off for viable stock
E-commerce. cut-off for viable stock
13
Titles, ordered by sales, decreasing
J.K. Rowling
J.R. Hartley
A few big hits (green). A lot of stuff that sells
poorly (yellow). But a lot of the potential sales
(in the area under the curve) are yellow.
10
Consumer Behaviour
Prentice Hall, 2002
11
Purchasing decision-making model

• 6 major phases
• Need identification
• Develop Consideration Set
• Information search and evaluation of alternatives
• Choice Decision
• Configuration/Personalization
• Upgrade/Replacement
• Need to help the Consumer at each stage of this
  process
• Return to this later from market-research
  viewpoint

12
Consumers 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 customer
  needs
• Other criteria
• service after the sale, online help, return
  policy.
• Advertisers try to Influence consumer decision
• Productsportfolio of items available
• Price of the products
• Promotion of products (ads giveaways)
• Packaging and delivery.

13
Online Purchasing Aids

• Shopping portals
• Comprehensive portals - many different sellers
  comparisons
• Shop.lycos.com
• Niche oriented - specialised line of products
  (dogtoys.com)
• Shopbots and agents
• Tools scout the Web for specific search criteria
  - Mysimon.com
• Business ratings sites
• Sites that rate e-tailers - Bizrate.com,
  Gomez.com
• Trust verification sites
• Evaluate and verify trustworthiness of e-tailers
  - TRUSTe
• Escrow services
• 3rd party to assure quality and proper exchange
• Communities of consumers
• Epinions.comsearchable recommendations on
  products
• PriceGrabber.comcomparison shopping

14
One-to-One Marketing

• Build a long term association
• Meeting customers cognitive needs
• Customer may have novice, intermediate or expert
  skill
• E-loyaltycustomers loyalty to an e-tailer
• costs Amazon 15 to acquire a new customer
• costs Amazon 2 to 4 to keep an existing
  customer
• Trust in EC
• Deterrence-based threat of punishment
• Knowledge-based reputation
• Identification-based empathy and common values
• Referrals Viral Marketing
• Personalisation

15
Personalization

• E-Commerce sites can treat customers differently
• Offer recommendations, special deals
• Personalise web site
• Adjust prices
• In theory, personalised shop one of the great
  benefits of e-commerce
• Can also take advantage of more of long tail
• Dont need to keep stock in same way as
  traditional shop
• Can do things like Print On Demand

16
Personalisation - Marketing ModelTreat
different customers differently
Prentice Hall, 2002
17
Personalisation

• Process of matching content, services, or
  products to individuals preferences
• Build profiles N.B. Privacy Issues
• Solicit information from users
• Use cookies to observe online behavior
• Use data or Web mining

18
Recommendation

• Build profiles
• What has X bought?
• What has X looked at?
• Demographics age, gender, etc
• Recommendation
• Rules If X buys Harry Potter 6, recommend HP 7
• Data Mining Other people who bought Harry Potter
  also bought Lord of the Rings
• Collaborative Xs overall buying profile is
  similar to Y, so recommend whatever Y bought

19
Data Mining
searching for valuable information in extremely
large databases

• Automated prediction of trends and behaviors
• Example from data on past promotional mailings,
  find out targets most likely to respond in future
• Automated discovery of previously unknown
  patterns
• Example find seemingly unrelated products often
  purchased together
• Example Find anomalous data representing data
  entry errors
• Mining tools
• Neural computing
• Intelligent agents
• Association analysis - statistical rules
• Web Mining - Mining meaningful patterns from Web
  resources
• Web content mining searching Web documents
• Web usage mining searching Web access logs

20
Recommendations

• If done well, perceived very positively
• Real benefit, not just marketing spam
• Credit-card companies have done this well
• Have the most purchasing data?
• Data privacy issues
• Can Visa sell data about you to Amazon?
• Spyware to track all of your web browsing?

21
Personalise Web Sites

• Let customers create their own shop front
  focusing on their interest
• Adjust appearance (eg, for visually disabled, or
  strict, religious consumers)
• Do-able, not huge success

22
Personalised Pricing

• Companies would love to be able to charge people
  different amounts for the same product
• Airline seats, cars, etc
• Full price for people who are keen, in a rush,
  dont care about money
• Discount for choosy/finicky

23
Personalised Pricing (B)

• Amazon, etc have tried this, but customers hated
  it.
• So has gone underground for now.
• Technology permits this, but societys
  expectations does not allow it

24
Advertising

• E-Shops (and other sites) can make money via
  advertising
• Google makes billions from its sponsored links
• Amazon has adverts as well

25
Web Advertising

• Conventional advertising focuses on visual appeal
• Less successful on web
• Flashy animated banner adverts are a nuisance and
  distraction

26
Targeted adverts

• Web allows relevant adverts to be associated with
  a web page
• Google sponsored links based on search
• Amazon could display different adverts for sci-fi
  and romance novel
• Very effective if done well
• So Web sites can charge more for targeted adverts

27
Web adverts

• Initially treated like TV adverts, put huge
  effort into flashy multimedia banner ads
• Now focusing on simple targeted adverts instead
• Advertising models cannot be blindly moved from
  TV to web
• need new models!

28
Consumer Satisfaction
Prentice Hall, 2002
29
Customer Focus Summary

• Sometimes technology really helps
• Recommender systems, targeted adverts
• Sometimes technology works, but society doesnt
  like it
• Differential pricing
• Trust sine qua non

30
E-Tailing Business Models (by revenue)

• Subscription models
• Charge monthly or annual subscription fee for
  service
• Transaction fee models
• 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)
• Alternative Classification (by service)
• Direct marketing sell directly to consumers
• Pure-play e-tailers do not maintain physical
  channel
• Traditional retailers with Web sites 2 channels
• On-Demand Delivery Services (ODDS)
• Firms that have a fleet to deliver direct to
  consumers

31
E-tailing Failures and Lessons Learned

• Profitability Each additional sale must lead to
  additional profits
• if it doesnt make cents it doesnt make sense
• Some pure play e-tailers lose money on every sale
  to grow to profitable size and scale
• Branding drive to establish brand can lead to
  excessive spending
• Strategy based on assumption that they will get
  quick customer recognition
• Performance
• Web sites need to function in a fast,
  user-friendly manner
• Security (well return to this later)
• Static design or dynamic sites rich databases
  of useful information encourage customers to
  return
• Incorrect Revenue Model many were relying on
  advertising.
• Lack of funding takes time to acquire
  sufficient customer base, investors were not
  willing to wait / take the risk
• First-mover may make mistakes, second-mover can
  learn

32
Middleman Problem(a case study in the travel
industry)

• Retailers are middleman between provider and
  customer
• Traditionally make money by mark-up
• Buy product from supplier for 10, sell it to
  customer for 15
• Difference (5) is profit margin

33
Middleman problem

• Competition keeps profit margin down
• If you have a 5 mark-up, customers will go to
  competitor with 4 mark-up
• Suppliers may sell direct to customer
• If supplier sells product to customer for 12, he
  and customer benefit
• Disintermediation
• Hard to make money by mark-up in e-Commerce.

34
Example Flights

• Pre-Internet, airlines sold flights to consumers
  via travel agents.
• Travel agent charged 100, gave airline 80 and
  kept 20 as mark-up
• If customer bought directly from airline, would
  be charged 100 (same as from travel agent)
• How did agents add value?

35
Example Flights

• In Internet age, airlines sell flights directly
  to customer
• Airline sells flight to both customer and travel
  agent for 80.
• If travel agent sells flight to customer for 80,
  he wont make any money
• If travel agent charges 100, customer will buy
  direct from airline for 80
• How can travel agent make money in Internet age?
• Especially a small one, not Expedia

36
Business Models

• Sell extras, upgrades
• Sell flight at cost price, but extras at high
  markup
• E.g., insurance, delivery
• Use loss leaders and technology lock-in, e.g.
  http//www.bbc.co.uk/news/technology-19907546 .
• Make sales elsewhere
• Sell advertising space on website
• Sell customer data.
• Address niche market
• Specialize in travel to, say, Poland
• Flights, hotel, airport transfer, tours
• Specialize in selling flights to universities
• Failures from poor understanding of niche, e.g.
  Pink it, Shrink it http//www.bbc.co.uk/news/b
  usiness-19884720
• In these cases, how is value added?

37
Business Models (B)

• Branding
• Build up a good reputation, so customers trust
  you to offer OK deals, good delivery
• If youre trustworthy and cheap enough, it is
  not worth the hassle of looking at competitors
• Satisficing
• Means trusted shop can charge a bit more
• Marketing helps branding
• Customers visiting site helps
• Even if no purchase, just looking

38
Business Must Change

• Successful Internet travel agents differ from
  successful pre-Internet travel agent
• Old small shop selling generic flights to local
  customers with high mark-up
• Joes travel agency
• Wheres the added value for the custommer?
• New focus on product niche, high mark-up extras,
  advertising revenue, brand
• Expedia, escape2poland.co.uk
• Wheres the added value for the customer?

39
Internet Business Model

• Internet requires new business model(s)
• Management issue (mostly), not technology
• But must be resolved in order for e-commerce to
  really take off
• Poor business models one cause of dot-com
  boom/bust
• Pouring in money before business model issue
  resolved is a mistake!

40
E-Commerce Bus. Mod. Summary

• Initially tried to make e-shops similar to high
  street shops. But
• Need different business model
• Trust issues much more important
• Need appropriate legal framework

41
Organizational Change

• Internet (and most new tech) cannot be fully
  exploited unless society changes
• Change is painful for companies
• Many bankrupt small travel agents
• Many bankrupt dot-com investors

42
Organizational Change

• Change is painful for individuals
• Loss of skills Joe has worked for 30 years
  selling generic hols to Spain, does this well
• Must ditch this, learn new skills
• Dislike model Joe dislikes encouraging
  customers to buy overpriced insurance
• Loss of income average income of travel agents
  may go down, even if they adapt

43
Summary

• Consumer Categories value shoppers, convenience
  shoppers
• Consumer Decision Criteria value, service,
  convenience
• Online Purchasing Aids portals, shop-bots,
  trust sites
• E-Tailing Business Models
• Click and Mortar Strategy
• E-tailing Problems channel conflict, wrong
  revenue model
• Case study from Travel Industry
• Need for organizational change

44
E-Commerce in the News

• OFT details widespread ongoing problems with
  compliance with UK Distance Selling Regulations
• More than a third of the UK's top online
  retailers could be breaking consumer laws, the
  Office of Fair Trading (OFT) has said.
• http//www.bbc.co.uk/news/business-19910561
• http//www.oft.gov.uk/shared_oft/research/OFT1452_
  Websweep_report_2012.pdf
• Facebook pays 238 000 in (corporation) tax in
  the UK despite advertising revenue of 175 000
  000 (estimated).
• Only reports 20 000 000 revenue in the UK.
• http//www.bbc.co.uk/newsbeat/19910456