1. E-commerce business. technology. society. Kenneth C. Laudon
Third Edition
Kenneth C. Laudon
Carol Guercio Traver
Copyright © 2006 Pearson Education, Inc.

2. Chapter 10 Retailing on the Web
Copyright © 2006 Pearson Education, Inc.

3. Blue Nile Sparkles For Your Cleopatra Class Discussion
Why is selling (or buying) diamonds over the Internet so difficult?
How has BlueNile built its supply chain to keep costs low?
How has BlueNile reduced consumer anxiety over online diamond purchases?
What are some vulnerabilities facing BlueNile?
Would you buy a $5,000 engagement ring at BlueNile?
Copyright © 2006 Pearson Education, Inc.

4. Major Trends in Online Retail, 2006
See also Table 10.1, Page 575.
Online retail increasingly profitable
Buying online becomes normal, mainstream experience
Selection of goods online increases, including customized goods
Average annual amount of purchases increases
Specialty retail sites show most rapid growth
Increased emphasis on improved shopping experience
Increased use of interactive multimedia marketing
Retail intermediaries strengthen in many areas
Retailers increasingly efficient at integrating multiple channels
Customized goods, especially in apparel, become financially successful, and begin to spread to many sites beyond specialty retailers.
Online shopping becomes more multi-seasonal
Most online shopping occurs at work, evenings at home
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5. The Retail Sector
Most important theme in online retailing is effort to integrate online and offline operations
U.S. retail market accounts for over $7.7 trillion of total GDP (2/3rds of all economic activity)
Retail industry can be divided in segments, each of which offers opportunities for online retail
Biggest opportunities for online retail sales: Those segments that sell small ticket items (specialty stores, general merchandisers, mail-order catalogs, groceries)
Mail order/telephone order (MOTO) sector most similar to online retail sector
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6. Composition of the U.S. Retail Industry
Figure 10.1, Page 576
SOURCE: Based on data from U.S. Census Bureau, 2005.
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7. Online Retailing: The Vision
Greatly reduced search costs on the Internet would encourage consumers to abandon traditional marketplaces in order to find lower prices for goods
Market entry costs would be much lower than those for physical storefronts, and online merchants would be more efficient than offline competitors
Traditional offline physical store merchants would be forced out of business
Some industries would become disintermediated as manufacturers built direct relationship with consumer
Ultimately, few of the above assumptions proved to be correct, and structure of retail marketplace in the U.S. has not be revolutionized
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8. The Online Retail Sector Today
Online retailing segment, although smallest segment of retail industry, is growing at exceptionally fast rate
Online retail revenues: $85 billion, 115 million consumers estimated for 2005
Primary beneficiaries of growing consumer support: Established offline retailers with an online presence
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9. Online Retail and B2C E-commerce is Alive and Well
Figure 10.3, Page 581
SOURCE: Based on data from U.S Department of Commerce, 2005; eMarketer, Inc, 2005a; Shop.org and Forrester Research, 2005, authors’ estimates.
Copyright © 2006 Pearson Education, Inc.

10. Insight on Business: Merlot by Mail Class Discussion
Why is eVineyard one of the few online surviving wine retailers?
What was the key to eVineyard’s success?
How will changes in state laws open up online wine sales?
How did the Supreme Court decision effect wine retailing and wineries in the United States?
Copyright © 2006 Pearson Education, Inc.

11. Analyzing the Viability of Online Firms: Strategic Analysis
Strategic analysis of economic viability of a firm focuses on both industry as a whole and firm
Key industry strategic factors:
Barriers to entry
Power of suppliers
Power of customers
Existence of substitute products
Industry value chain
Nature of intra-industry competition
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12. Analyzing the Viability of Online Firms: Strategic Analysis (cont’d)
Strategic factors that pertain to firm include:
Firm value chain
Core competencies
Synergies
Technology
Social and legal challenges
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13. Analyzing the Viability of Online Firms: Financial Analysis
Financial analysis helps us understand how a firm is performing
Includes two main parts: Statement of Operations and Balance Sheet
Statement of Operations: Tells us how much income or loss a firm is achieving based on current sales and costs
Balance sheet: Provides a financial snapshot of a company’s assets and liabilities
Copyright © 2006 Pearson Education, Inc.

14. Analyzing the Viability of Online Firms: Financial Analysis (cont’d)
Factors to look for when assessing Statements of Operations
Revenues: growing and at what rate?
Cost of sales: compared to revenues
Gross margin (gross profit divided by net sales): increasing or decreasing?
Operating expenses: What are they; increasing or decreasing?
Operating margin: Indication of company’s ability to turn sales into pre-tax profit after operating expenses are deducted
Net margin (net income or loss divided by net sales or revenue): increasing or decreasing?
Copyright © 2006 Pearson Education, Inc.

15. Analyzing the Viability of Online Firms: Financial Analysis (cont’d)
Factors to look for when assessing a Balance Sheet:
Current assets
Current liabilities
Ratio of current assets to liabilities (working capital)
Long-term debt
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16. E-tailing Business Models
Four main types of online retail business models:
Virtual merchant
Bricks-and-clicks
Catalog merchant
Manufacturer direct
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17. Virtual Merchants
Single channel Web firms that generate almost all revenues from online sales
Example: Amazon.com
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18. E-commerce in Action: Amazon.com
Vision: Earth’s biggest selection, most customer-centric
Business Model: Virtual merchant that sells merchandise owned by Amazon, online storefronts for other merchants, merchandise owned by individuals; e-commerce services
Financial Analysis: Greatly improved overall operational position, but not yet consistently profitable
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19. E-commerce in Action: Amazon.com
Strategic Analysis: Business strategy: Maximize revenue while cutting costs
Strategic Analysis: Competition: General merchandisers who are both offline and/or online
Strategic Analysis: Technology: Largest, most sophisticated collection of online retailing technologies available
Strategic Analysis: Social, Legal: Securities, anti-trust lawsuits
Future Prospects: Long-term profitability still uncertain
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20. Multi-channel Merchants: Bricks and Clicks
Companies that have a network of physical stores as primary retail channel, but also online offerings
Examples: Wal-Mart, J.C. Penney, Sears
Copyright © 2006 Pearson Education, Inc.

21. Catalog Merchants
Established companies that have a national offline catalog operation as largest retail channel, but also have online capabilities
Examples: Lands’ End, L.L. Bean, Eddie Bauer, Victoria’s Secret, Lillian Vernon
Copyright © 2006 Pearson Education, Inc.

22. Manufacturer-Direct
Single or multi-channel manufacturers who sell directly online to consumers without intervention of retailers
Example: Dell
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23. Insight on Society: Internet Taxation: The Tax Man is Coming Class Discussion
Why should online retailers collect state sales taxes?
What is the Streamlined Sales Tax Project and how will it potentially effect the collection of online sales taxes?
Why do some major online stores like Wal-Mart collect sales taxes?
Copyright © 2006 Pearson Education, Inc.

24. Distribution of Online Retail Sales by Type of Merchant
Figure 10.3, Page 603
SOURCE: Based on data from Internet Retailer, 2005.
Copyright © 2006 Pearson Education, Inc.

25. Common Themes in Online Retailing
Online retail fastest growing channel, has fastest growing consumer base, growing penetration rate across many categories of goods
Many online retail firms have begun to raise prices
Disintermediation has not occurred, and most manufacturers use Web primarily as an informational resource
Most significant online growth has been that of offline giants who are focusing on extending brand to online channel
Second area of rapid growth: specialty merchants
Copyright © 2006 Pearson Education, Inc.

26. Insight on Technology: Using the Web to Shop ‘Till You Drop Class Discussion
What do shopping bots and comparison sites offer consumers?
Why are shopping bots more successful with hard goods than soft goods?
What is the strategy of Become.com?
How can shopping bots compare luxury goods?
How will adding content to comparison sites help consumers?
Copyright © 2006 Pearson Education, Inc.