Amazon.com: King of E-Tailing

1
Amazon.com King of E-Tailing
Chapter 3 Retailing in E-CommerceProducts and
Services

• The Problem
• Amazon.com has recognized that it must
  continually enhance its electronic store by
  expanding product selection and improving the
  customer experience
• The Solution
• Results

2
E-Tailing and B2C Market Growth

• A retailer is a sales intermediary, a seller that
  operates between manufacturers and customers
• Electronic retailing (e-tailing)retailing
  conducted online, over the Internet
• Catalog sales free a retailer from the need for a
  physical store
• Manufacturer sells directly to the customer,
  cutting out the intermediary

3
Size and Growth of the B2C Market

• Statistics for volume of B2C EC sales come from
  many sources
• emarketer.com
• jmm.com
• Statistics on e-tailing can be found at
• Cyberdialogue.com
• Business2.com
• Substantial deviations in the reported data due
  to how the numbers are derived

4
What Sells Well on the Internet?

• Computers and electronics
• Sporting goods
• Office supplies
• Books and music
• Toys

• Health and beauty
• Entertainment
• Apparel
• Cars
• Services
• Others

5
Characteristics of Successful E-Tailing

• Brand recognition and guarantees
• Guarantee provided by highly reliable or
  well-known vendors
• Digitized products
• Inexpensive items
• Frequently purchased

• Commodities with standard specifications
• Well-known packaged items that cannot be opened
  even in a traditional store

6
E-Tailing Business Models

• E-tailing business models can be classified in
  several ways
• By the scope of items handled
• General-purpose
• Specialty e-tailing
• By scope of the sales region covered
• Global
• Regional
• Two main models
• Direct selling model
• Distribution channel

7
Classification by Revenue Model

• Product sales models
• Charge customers directly for products or
  services
• 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)

8
Classification by Distribution Channel

• Direct marketingmanufacturers sell directly from
  company sites to individual customers
• Pure-play e-tailershave no physical stores, only
  an online sales presence
• Click-and-mortar retailerstraditional retailers
  with a supplementary Web site

9
Direct Marketing by Manufacturers or Mail-Order
Companies

• Direct marketingbroadly, marketing that takes
  place without intermediaries between
  manufacturers and buyers in the context of this
  book, marketing done online between the seller
  and the buyer
• Disintermediationremoval of organizations or
  business process layers responsible for certain
  intermediary steps in a given supply chain

10
Exhibit 3.1 Disintermediation in the B2C Supply
Chain
11
Direct Marketing by Manufacturers or Mail-Order
Companies (cont.)

• Parties in direct marketing have a greater
  opportunity to influence each other
• Make-to-order onlinedirect sales by
  manufacturers are gaining popularity due to the
  ability to customize products or services

12
Virtual (Pure-Play) E-Tailers

• Virtual 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

13
Buying Cars OnlineBuild to Order

• Traditional systembuild-to-stock
• Manufacturers conduct market research to estimate
  which features and options will sell well
• Make the cars they wish to sell
• Cars are sold from stock at a loss when there is
  insufficient demand for a particular vehicle
• Auto giants intend to transform themselves from
  build-to-stock to
• build-to-order companies
• Cutting inventory requirements in half
• Giving customers exactly what they want

14
Buying Cars OnlineBuild to Order (cont.)

• Using a virtual car at jaguar.com
• Consumers custom configure their cars features
  and components, see it online, price it, have it
  delivered to a nearby dealer
• Web site helps with the research process
• The configuration is transmitted to the
  production floor
• Reducing delivery time
• Contributing to increased customer satisfaction

15
Click-and-Mortar Retailers

• Brick-and-mortar retailersretailers who do
  business in the non-Internet, physical world in
  traditional brick-and-mortar stores
• Click-and-mortar retailersbrick-and-mortar
  retailers with a transactional Web site from
  which to conduct business
• Traditional retailing frequently involves a
  single distribution channel, the physical
  storemay also operate a mail-order business
• Multichannel storefirm that operates both
  physical stores and an online e-tail site

16
Other Business Models

• Viral marketing
• Market makers
• Make-to-order
• Service providers

• Electronic mall
• Transaction brokers
• Information portals
• Communities portal
• Content creator or disseminators

17
Travel and Tourism Services Online

• The Internet is an ideal place to plan, explore,
  and arrange almost any trip and save money
• Travel-related information available at many
  sites including
• Expedia.com Orbitz.com
• Travelocity.com Asiatravel.com
• Travelweb.com Trip.com
• Eurovacations.com Priceline.com
• Lonelyplanet.com

18
Travel and Tourism Services (cont.)
Services provided

• Outlet for travel accessories and books
• Experts opinions
• Major international and travel news
• Driving maps and directions
• Chat rooms
• Frequent flier deals
• Online travel auctions

• Information and bookings
• Travel tips
• Electronic Travel magazine
• Fare comparisons
• Currency conversion calculators
• Fare tracker
• Worldwide business and places locator

19
Travel and Tourism Services (cont.)

• Special services
• Very low airfares and discount accommodations
• Last-minute trips can also be booked
• Special vacation destinations
• Sites that offer medical advice and services for
  travelers
• World Health Organization (who.int)
• Governments (cdc.gov/travel)
• Private organizations (Healthcenter.com)

20
Travel and Tourism Services (cont.)

• Wireless services
• Customers with WAP cell phones can check their
  flight status, update frequent flyer miles, and
  book flights
• Direct marketing
• Build customer profiles and target specific
  customers with tailored offers
• Alliances and consortia
• Increase sales or reduce purchasing costs

21
Travel and Tourism Services (cont.)

• Benefits
• Free information is tremendous
• Free information is accessible anytime
• Substantial discounts
• Limitations
• Not all people use the Internet
• It may take a long time to find what you want
• People are still reluctant to provide credit card
  numbers

22
Impacts of EC on the Travel Industry

• Impacts of EC on the travel industry into 10
  categories including
• Product promotion, new products, new business
  models
• Only the value-added activities of travel
  agencies will not be automated
• Performed by a new type of organization
• Will serve certain targeted markets and customers
• Entering the market will be
• Travel superstores that will provide
• Innovative individuals operating from their homes

23
Intelligent Agents in Travel Services

• Step 1 visit an online travel site and enter
• Desired destination
• Dates
• Available budget
• Special requirements
• Desired entertainment
• Step 2 computer dispatches an intelligent agent
  that shops around

24
Intelligent Agents in Travel Services (cont.)

• Step 3 agent attempts to match your requirements
  with what is available, negotiates with vendors
• Step 4 agent returns within minutes with
  suitable alternatives, modifies as per your
  wishes, books the vacation
• Voice communication with agent may be possible by
  2005

25
Real Estate

• You can view many properties on the screen
• You can sort and organize properties
• You can find detailed information about the
  properties
• You can search, compare and apply for loans

26
Real Estate (cont.)

• In some locations, real estate databases are only
  available to realtors over private networks in
  their offices
• Builders use virtual reality technology on their
  Web sites to demonstrate three-dimensional floor
  plans to home buyers
• Virtual models enable buyers to walk through
  three-dimensional mock-ups of homes

27
Insurance Online

• Insuranceauto, home, life, and health at a
  substantial discount
• Insureate.com
• Order.com
• Quotesmith.com

28
Online Stock Trading

• Costs between 5 and 29 per transaction (vs. 10
  - 35 in traditional brokerage)
• No waiting on busy telephone lines
• No oral communication, less chance for errors
• Place orders from anywhere, any time, day or
  night
• No biased broker to push you
• Considerable amount of free information

29
Banking Personal Finance Online (cont.)

• Electronic banking (e-banking)various banking
  activities conducted from home or the road using
  an Internet connection also known as
• Cyberbanking Virtual banking
• Online banking Home banking
• Electronic banking
• Saves time and money for users
• Offers an inexpensive alternative to branch
  banking
• Many traditional banks around the world offer
  diversified e-banking services
• main.hangseng.com

30
Capabilities of Home Banking

• Get current account balances any time
• Obtain charge and credit card statements
• Pay bills
• Download account transactions
• Transfer money between accounts

• Balance accounts
• Send e-mail to the bank
• Expand the meaning of bankers hours
• Handle finances when traveling
• Additional services
• Free phone banking
• Waive checking fees

31
International and Multiple-Currency Banking

• Some international retail purchasing can be done
  by credit card
• Other transactions may require international
  banking support
• Hong Kong Banks HEXAGON provides e-banking in
  Asia
• Tradecard and MasterCard developed a
  multiple-currency system for global transactions
  (tradecard.com)
• A multidealer foreign exchange service that
  enables faster and cheaper foreign exchange
  transactions (fxall.com)

32
Implementation Issues in Online Financial
Transactions

• Using bank intranets
• Banks provide large business customers with
  personalized service by allowing them access to
  the banks intranet to access accounts,
  historical transactions, intranet-based
  decision-support applications
• Imaging systemsallow customers to view images of
  all
• Incoming checks
• Invoices
• Other related online correspondence

33
Personal Finance Online

• Bill paying and
• e-checks
• Tracking bank accounts etc.
• Portfolio management
• Investment tracking
• Stock quotes and prices (past and current)

• Budget organization
• Record keeping
• Tax computations
• Retirement goals, planning and budgeting

34
Online Billing and Bill Paying

• Automatic transfer of mortgages
• This method has existed for several years
• The payer authorizes its bank to pay the
  mortgage, including tax escrow payments
• Automatic transfer of funds to pay monthly
  utility bills
• Paying bills from online banking account

35
Online Billing and Bill Paying (cont.)

• A merchant-to-customer direct billing
• A merchant posts bills on its Web site
• Customers can view and pay their bill
• Using an intermediary
• A third party consolidates all bills related to
  each customer in one site in a standard format
• Collects a certain commission
• Makes it convenient to complete transactions

36
Online Billing and Bill Paying (cont.)

• Person-to-person direct payment
• Paypal.com (now an eBay company)enables you to
  send funds to another individual over the
  Internet
• Online billing and bill-paying can be classified
  into B2C, B2B, or C2C.
• Opportunities exist in B2B servicescan save
  businesses about 50 percent of billing costs
• In Hong Kong, CitiCorp links suppliers, buyers,
  and banks on one platform, enabling automatic
  payments

37
On-Demand Delivery Service (ODDS)

• On-demand delivery service (ODDS)express
  delivery made fairly quickly after an online
  order is received
• On-Demand Delivery Services (ODDS)
• May own a fleet of delivery vehicles for regular
  deliveries and delivery within short time period

38
Who Are the Online Grocery Shoppers?

• Shopping avoiders
• Necessity userslimited by their ability to shop
  offiline
• New technologists
• Time-starved consumers
• Consumers who gain a sense of self-worth from
  online shopping
• Older individuals who enjoy shopping in any type
  of store

39
Who Are the Online Grocery Shoppers? (cont.)

• Repeat customers with an ongoing relationship
  with the grocer
• Parknshop.com in Hong Kong offers a personal
  shopping list that helps customers easily order
  repetitive items
• Tesco.com in the United Kingdom is another
  successful e-grocer

40
Who Are the Online Grocery Shoppers? (cont.)

• Offers grocers an additional channel to increase
  their sales volume and serve customers
• Increases their publicity by maintaining an
  Internet presence
• Despite the promise that on-demand delivery seems
  to hold, virtual e-grocers have not been
  successful in this competitive market

41
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

42
New Developments in Digital Delivery

• Custom-publishing music CD sitescollection of
  personal favorites
• Disintermediation of traditional print media
• Journals and magazines
• Newspapers (e.g., Wall Street Journal)
• Comprehensive portals
• Links to many different sellers
• Shopping comparison sites
• Comparison tools are available

43
Shopping Portals (cont.)

• Shopping portalsniche oriented
• Specialize in a certain line of products
• Some collect referral fee only
• Others have formal relationships with affiliates
• 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

44
Successful Click-and-Mortar Strategies

• Click-and-mortar hybrid strategies
• Speak with one voice
• Empower the customer
• Leverage the channels
• Return item purchased online at physical store
• Order via the Web at the physical store items not
  available there
• Large, efficient established retailers are able
  to create the optimum value proposition for their
  customers by providing a complete offering of
  services

45
Alliance of Virtual with Traditional Retailers
Amazon and Toys R Us

• 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

46
Problems with E-Tailing Lessons Learned

• Profitability
• Lose money on every sale as they try to grow to a
  profitable size and scale
• Underlying cost and revenue models were not sound
• Long-run success requires financial viability
• Manage new risk exposure
• Local companies contend with local customers and
  local regulations
• National firms have more constituents
• Global firms deal with numerous cultural
  perspectives

47
Problems with E-Tailing Lessons Learned (cont.)

• Brandingdrive to establish brand can lead to
  excessive spending
• Starting with insufficient funds
• Keep it interesting
• Static design is a turn-off
• Dynamic sites with rich databases of information
  appeal most to customers

48
Disintermediation Reintermediaries

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

49
Intermediarys New Role

• Role will shift to one that emphasizes
  value-added services such as
• Assisting customers in comparison shopping from
  multiple sources
• Providing total solutions by combining services
  from several vendors
• Providing certifications and trusted third-party
  control and evaluation systems

50
Reintermediaries

• Reintermediariesintermediaries that have
  restructured their roles in the purchase process
• Kbb.compricing information for consumers
• Edmunds.cominformation about the dealers true
  costs
• Lead services that
• Direct buyers to member dealers
• Offer direct sales of new cars
• autobytel.com
• carsdirect.com (Amazon.coms partner)

51
Cybermediation and Hypermediation

• Cybermediation (electronic intermediation)use of
  software (intelligent) agents to facilitate
  intermediation
• Hypermediationextensive use of both human and
  electronic intermediation to provide assistance
  in all phases of an
• e-commerce venture

52
Conflict and Personalization

• Channel conflictsituation in which an online
  marketing channel upsets the traditional channels
  due to real or perceived damage from competition
• Personalizationcustom designed marketing plan
• Tailored to buying patterns
• Appeal to sense of value
• Excellent customer service
• Mass customization

53
Managerial Issues

• Should we grab a first-mover advantage or wait
  and learn?
• What should our strategic position be?
• Are we financially viable?
• Should we recruit out of town?
• Are there international legal issues regarding
  online recruiting?
• Do we have ethics and privacy guidelines?
• How will intermediaries act in cyberspace?
• Should we set up alliances?

54
Summary

• E-tailing business models
• The major e-tail markets
• Click-and-mortar strategy
• How online travel/tourism services operate
• The online job market,its drivers,and benefits
• The electronic real estate market

55
Summary (cont.)

• Online stocks and bonds
• Cyberbanking and personal finance
• On-demand delivery service
• Delivery of digital products
• Aiding consumer purchase decisions
• Critical success factors
• Disintermediation and reintermediation