chapter 3 retailing in electronic commerce (e-tailing)

Chapter 3

Retailing in Electronic Commerce (E-Tailing)

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Opening Case: Amazon.com

B2C business model where customers look for a: Low price Fast shipment Good return policy Helpful customer service

Customer profile different from traditional bookstore From Buy-and-sell to Sell-Order-Deliver

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Opening Case: Amazon.com (cont.)

Largest Bookstore in the world Offers millions of items

Books and music DVDs and videos Toys and video games Electronics and software Home improvement products

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Opening Case: Amazon.com (cont.)

Started business in 1995 Sales

1996 = $15.7 million2000 = $1.8 billion

Products 1999 = 5 million titles2000 = 13 million books, music, DVD/video

titles

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Opening Case: Amazon.com (cont.)

Auctions Hosts and operates auctions for individuals and

small businesses zShops, Amazon marketplace, Amazon

payment processingProvide the opportunity for small businesses to

develop custom storefrontStorefronts are supported by Amazon’s backend

order fulfillment processing

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Opening Case: Amazon.com (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

Features

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Opening Case: Amazon.com (cont.)

Customer relationship management Creates interesting and informative front-end Highly automated and efficient back-end

support Personalized service

Return customers are welcomed back by nameCustomer wish lists availableE-mails customers purchase recommendations

based on their purchasing history

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Opening Case: Amazon.com (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

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Opening Case: Amazon.com (cont.)

Diversification through business alliances Online sale of cars - greenlight.com Online health and beauty aids -

drugstore.com Wireless phones – multiple business partners Toys - ToysrUs.com

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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

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E-Tailing and B2C Market Growth (cont.)

The B2C Market success is derived from: Offering quality merchandise at good prices Excellent customer service Convenience

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E-Tailing and B2C Market Growth (cont.)

Characteristics of goods leading to high online sales volumes Brand recognition and guarantees Digitized products Frequently purchased, inexpensive items Well-known items with standard

specifications

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Consumer Purchase Processand 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

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Figure 3-1The Consumer Purchase Decision Process

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Consumer Purchase Processand Marketing Plan (cont.)

Time-starved consumers

Shopping avoiders New technologists Time-sensitive

materialists or click-and-mortar consumers

Traditionalists Hunter-gatherers Brand loyalists Single shoppers

Types of online shoppers

Which are your targets?

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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

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A Marketing Plan

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

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Online Purchasing Aids

Shopping portals Comprehensive portals

Links to many different sellersShopping comparison sitesComparison tools are available

Niche orientedSpecialize in a certain line of products

(dogtoys.com)Some collect referral fee onlyOthers have formal relationships with affiliates

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Online Purchasing Aids (cont.)

Shopbots and agents—tools 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

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Online Purchasing Aids (cont.)

Business ratings sites—sites that rate e-tailers Bizrate.com—compiles results provided by a

network of shoppers Gomez.com—consumer identifies relative

importance of different criteria

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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 sites—evaluate and verify trustworthiness and integrity of e-tailers

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Online Purchasing Aids (cont.)

Other shopping tools Escrow services—3rd party to assure quality

Proper exchange of money and goods Research information Payment-processing support

Communities of consumers Epinions.com—searchable recommendations on products PriceGrabber.com—comparison shopping

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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)

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Figure 3-2Disintermediation in the B2C Supply Chain

Source: M. Warkentin, et al. (2000). Used with permission of Dr. Merrill Warkentin.

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E-Tailing Business Models (cont.) Direct marketing—sell directly to consumers

Manufactures can sell directly to customersDisintermediation—removal of business process

layers in the value chainShortens the distribution chain

– Eliminates inefficiencies

– Shortens delivery time

– Builds closer relationships with consumers

Click-and-mortarAdditional marketing channel to the conventional oneEffectively supports build-to-order requests

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E-Tailing Business Models (cont.)

Pure-play e-tailers—sell over the Internet without a physical sales channel General purpose e-tailers (Amazon.com)

Broad range of productsLarge number of consumers

Specialty or niche e-tailers (CatToys.com)One specific product areaHigh demand items in the areaEffective practices for customer appeal

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E-Tailing Business Models (cont.)

Traditional retailers with Web sites Physical store May include mail-order or catalog sales Multichannel store operates both

Physical storeE-tail site

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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 owner’s manual and warranty card

Download from Web site after payment

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Table 3-2Digital Goods

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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

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Digital Delivery (cont.)

New developments Custom-publishing music CD sites—collection

of personal favorites Disintermediation of traditional print media

Journals and magazinesNewspapers (e.g., Wall Street Journal)

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Successful Click-and-Mortar Strategies

Click-and-mortar hybrid strategies 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

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Successful Click-and-MortarStrategies (cont.)

Circuit City Case: transform to click-and-mortar (CircuitCity.com) 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

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Successful Click-and-MortarStrategies (cont.)

Amazon and Toys R Us: alliance of pure-play with traditional retailer 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

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Disintermediation & Reintermediaries

Disintermediation—manufacturer sells directly to consumer

Reintermediaries—new intermediary roles in the digital environment offer new ways to: Reach new customers Bring value to customers Generate revenues

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Channel Conflict & Personalization

Channel conflict—members antagonistic over: Incentives Rewards Policies Support

Personalization—custom designed marketing plan

Tailored to buying patterns

Appeal to sense of value

Excellent customer service

Mass customization

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E-Tailing : Lessons Learned

Profitability—online marginal sales don’t lead to marginal profits

Branding—drive to establish brand can lead to excessive spending

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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Managerial Issues

First-mover advantage or wait and learn Strategic positioning Trust New risk exposure Financial viability Successes