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1 Prentice Hall, 2002 Chapter 3 Retailing in Electronic Commerce (E-Tailing)

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1 1 Prentice Hall, 2002 Chapter 3 Retailing in Electronic Commerce (E-Tailing)

2 2 Prentice Hall, 2002 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

3 3 Prentice Hall, 2002 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

4 4 Prentice Hall, 2002 Opening Case For E-tailer EC can be classified as B2C or B2B Most companies used both classifications. B2C business model where customers look for a: Low price Fast shipment Good return policy Helpful customer service

5 5 Prentice Hall, 2002 Opening Case: Largest Bookstore in the world(billions of books) Begin since 1995 Offers millions of items Books and music DVDs and videos Toys and video games Electronics and software Home improvement products

6 6 Prentice Hall, 2002 Opening Case: (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

7 7 Prentice Hall, 2002 Opening Case: (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 Amazon s back-end order fulfillment processing

8 8 Prentice Hall, 2002 Opening Case: (cont.) Easy browsing and searching Useful product information Reviews, recommendations, and personalization Broad selection and low prices Secure payment system 1-Click order technology Gifts department Online community Secured payments Key Features of Amazon

9 9 Prentice Hall, 2002 Opening Case: (cont.) Customer relationship management (CRM) 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 s customers purchase recommendations based on their purchasing history

10 10 Prentice Hall, 2002 Opening Case: (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

11 11 Prentice Hall, 2002 Opening Case: (cont.) Diversification through business alliances that provide knowledgeable entry into new markets Online sale of cars - Online health and beauty aids - Wireless phones – multiple business partners Toys -

12 12 Prentice Hall, 2002 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

13 13 Prentice Hall, 2002 E-Tailing and B2C Market Growth (cont.) The early days of retailer used Brochureware with no interactivity physical retailer store or brick-and-mortar can combine to online … Then become online and offline prsence or click-and- mortar (sometime call brick-and-click ) The B2C Market success is derived from: Offering quality merchandise at good prices Excellent customer service Convenience *** Not different from traditional but online retail stores have more offering services …

14 14 Prentice Hall, 2002 Some statistic During 2001, estimated about 75 million of users participated online shopping 2000, worldwide B2C revenue $53 to $238 billion 2004, forecasted $428 to $2,134 billion (by 2001) Men are likely to purchase consumer electronics and computer HW/SW and Women likely to purchase apparel items (by Goldman Sachs research)

15 15 Prentice Hall, 2002 E-Tailing and B2C Market Growth (cont.) Characteristics of goods leading to high online sales volumes Brand recognition and guarantees A guarantee is provided by reliable vendors Digitized products Inexpensive items Frequently purchased, inexpensive items Well-known items with standard specifications Well-known package item which cannot open even in department store

16 16 Prentice Hall, 2002 Questions? How do online customers decide what to buy and where? What is their decission-making process? How can e-tailers influence consumer purchasing decissions?

17 17 Prentice Hall, 2002 Consumer Purchase Process and 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

18 18 Prentice Hall, 2002 The Consumer Purchase Decision Process

19 19 Prentice Hall, 2002 Consumer Purchase Process and Marketing Plan (cont.) Time-starved consumers : willing to pay higher price to save time on shopping Shopping avoiders : dislike shopping, people, traffics New technologists : because it s cool Time-sensitive materialists or click-and-mortar consumers : use online to look for products, and make a purchase at traditional store Types of online shoppers

20 20 Prentice Hall, 2002 Traditionalists : prefer store and may never adopt to online shopping behavior Hunter-gatherers : 20% of online shoppers enjoy the process of price comparison and search a good value Brand loyalists : shop online for particular brand Single shoppers : 16% of online shoppers prefer internet for shopping, banking, communication, game playing, news and other activities What are the criteria that individual shoppers use? Consumer Purchase Process and Marketing Plan (cont.) Types of online shoppers

21 21 Prentice Hall, 2002 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 the customer s needs Other criteria service after the sale, Telephone support 24/7, return policy

22 22 Prentice Hall, 2002 A Marketing Plan E-tailer must identical all posible ways to … Influence the consumer s decision process through the marketing mix Product portfolio of items available Price of the products Promotion of products (advertisements and giveaways) Packaging and delivery, place

23 23 Prentice Hall, 2002 Online Purchasing Aids Shopping portals : advice and rating producs or e- tailers Comprehensive portals e.g. Links to many different sellers Shopping comparison sites Comparison tools are available Niche oriented e.g. Specialize in a certain line of products ( Some collect referral fee only Others have formal relationships with affiliates

24 24 Prentice Hall, 2002 Online Purchasing Aids (cont.) Shopbots and agents tools that scout the Web for specific search criteria requested by consumers(include negotiation and auction agents) - best prices on multiple items using SKU(Stock Keeping Unit) – cars – computers – office supplies

25 25 Prentice Hall, 2002 Online Purchasing Aids (cont.) Business ratings sites sites that rate e-tailers compiles results provided by a network of shoppers consumer identifies relative importance of different criteria

26 26 Prentice Hall, 2002 Online Purchasing Aids (cont.) 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 company s annual revenue Secure Assure Yearly license fees based on company s annual revenue Ernst and Young Created its own service for auditing e-tailers Offers some guarantee of integrity of business practices Trust verification sitesevaluate and verify trustworthiness and integrity of e-tailers

27 27 Prentice Hall, 2002 Online Purchasing Aids (cont.) Other shopping tools Escrow services 3 rd party to assure quality Proper exchange of money and goods Research information Payment-processing support Communities of consumers searchable recommendations on products comparison shopping

28 28 Prentice Hall, 2002 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)

29 29 Prentice Hall, 2002 E-Tailing Business Models (cont.) Direct marketing sell directly to consumers Manufactures can sell directly to customers Disintermediation removal of business process layers in the value chain Shortens the distribution chain Eliminates inefficiencies Shortens delivery time Builds closer relationships with consumers As Click-and-mortar Additional marketing channel to the conventional one Effectively supports build-to-order requests

30 30 Prentice Hall, 2002 Disintermediation in the B2C Supply Chain Source: M. Warkentin, et al. (2000). Used with permission of Dr. Merrill Warkentin.

31 31 Prentice Hall, 2002 E-Tailing Business Models (cont.) Pure-play e-tailers sell over the Internet without a physical sales channel General purpose e-tailers ( Broad range of products Large number of consumers Specialty or niche e-tailers ( One specific product area High demand items in the area Effective practices for customer appeal

32 32 Prentice Hall, 2002 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

33 33 Prentice Hall, 2002 ODDS: Grocery Market Case On-Demand Delivery Services (ODDS): use common carrier to handle outbound logistics/distribution Own fleet of delivery vehicles Regular deliveries (weekly bases) Delivery within short time period (1 hour or same day)

34 34 Prentice Hall, 2002 ODDS: Grocery Market Case (cont.) Potential online grocery shoppers Shopping avoiders Necessity users limited by their ability to shop New technologists Time-starved consumers Responsible consumers Traditionals Repeat customers : provide help for repetitive orders, items Example: Parknshop in Hong Kong,

35 35 Prentice Hall, 2002 Digital Delivery Digital ( soft ) goods : customer may prefer physical distribution Music, movies, videos, software, newspapers, magazines, graphics, etc. Can be delivered in hard or soft form Computer program on CD-ROM with owner s manual and warranty card Download from Web site after payment

36 36 Prentice Hall, 2002 Digital Goods

37 37 Prentice Hall, 2002 Digital Delivery (cont.) Napster experience person-to-person sharing tool Enables individual users to download music files from each other s 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

38 38 Prentice Hall, 2002 Digital Delivery (cont.) New developments : invented on Internet Custom-publishing music CD sites collection of personal favorites in CD shiped to customer Disintermediation of traditional print media Journals and magazines : paper only subscription, online only subscription or dual-mode Newspapers (e.g., Wall Street Journal)

39 39 Prentice Hall, 2002 Successful Click-and-Mortar Strategies Click-and-mortar hybrid strategies (mature) Speak with one voice link all back-end systems to create an integrated customer experience Empower the customer powerful channel for service and information Leverage the channels offs 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

40 40 Prentice Hall, 2002 Successful Click-and-Mortar Strategies (cont.) Circuit City Case: transform to click-and- mortar ( electronic store 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

41 41 Prentice Hall, 2002 Successful Click-and-Mortar Strategies (cont.) Amazon and Toys R Us: alliance of pure- play with traditional retailer (new model) 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

42 42 Prentice Hall, 2002 Disintermediation & Reintermediaries in E-tailing Disintermediation manufacturer sells directly to consumer so customers need to select among a large number of manufacturers online Reintermediaries new intermediary roles in the digital environment(online assistance) offer new ways to: Reach new customers Bring value to customers Generate revenues

43 43 Prentice Hall, 2002 Channel Conflict & Personalization Channel conflict members antagonistic over: Incentives Rewards Policies Support *Make Channel cooperation Personalization custom designed marketing plan Tailored to buying patterns Appeal to sense of value Excellent customer service Mass customization

44 44 Prentice Hall, 2002 E-Tailing : Lessons Learned Profitability online marginal sales don t lead to marginal profits Branding drive to establish brand can lead to excessive spending(50% of Venture capital) Performance Web sites need to function in a fast, user-friendly manner Static design dynamic sites with rich databases of information appeal most to customers

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