Chapter 7 Business Model IV: Online Retailers

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Chapter 7Business Model IVOnline Retailers
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What are Online Retailers?

• Online retailers are companies that (1)use a
  website to merchandise newly manufactured
  physical goods for which they take title, and
  then (2)rely on third-party service providers to
  deliver those goods from remote warehouses.

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Categories of Online Retailers

• By merchandising emphasis
• Horizontal online retailers
• Vertical online retailers
• By pricing format
• Fixed pricing
• Group buying model
• auction
• Deep discount model

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Online Retailers Value Construction

• Attributes of product categories well suited for
  web retailing
• Information-rich products
• Large selection
• Little need for hands-on services or product
  trial
• High value-to-weight ratio
• Easily customizable products
• Rapid changes in stock availability, demand,
  and/or price
• Replenishment driven
• Unpleasant brick-and-mortar retailing environment

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Barriers to Online Shopping

• Security concern
• Lack of familiarity with the brands of some
  pure-play companies
• Unwilling to wait for home delivery
• Other general environmental factors

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Different Types of Shoppers

• E-bivalent newbies
• Time-sensitive materialists
• Clicks and mortar
• Hooked, online, and single
• Hunter-gatherers
• Brand loyalists

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Online Retailers Financial Model

• Revenue sources
• Cost structure
• Operational cost
• Distribution and customer service expenses
• Profitability

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Online Retailer vs Brick-and-Mortar Stores

• Brick-and-Mortar Stores
• 10 revenue on rent
• 14 on in-store labor for checkout, stocking
  shelves, etc.
• 2 on advertising
• 3 on general and administrative expenses

• Online retailer
• 3 revenue on developing and maintaining website
• 12 on warehouses, customer services, etc.
• 4 on advertising
• 1 on general and administrative expenses