1 prentice hall, 2002 chapter 3 (class4 22.01.02) retailing in electronic commerce (e-tailing)...
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Prentice Hall, 2002 1
Chapter 3(Class4 22.01.02)
Retailing in Electronic Commerce (E-Tailing)
modifications by J.Molka-Danielsen
Prentice Hall, 2002 2
Learning Objectives
Define and describe the primary business models of electronic retailing (“e-tailing”)Discuss various e-tail consumer aids, including comparison-shopping aidsDiscuss various e-tail markets, such as groceries, music, cars, and othersIdentify the critical success factors of direct marketing and e-tailing, along with mistakes to avoid
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Learning Objectives (cont.)
Identify the principles of “click-and-mortar” strategies for traditional retailersDescribe the issue of disintermediation, reintermediation, and channel conflicts in e-tailingIdentify various managerial issues of concern to e-tailers
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Opening Case: Amazon.com
B2C business model where customers look for a:
Low priceFast shipmentGood return policyHelpful customer service
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Opening Case: Amazon.com (cont.)
Largest Bookstore in the worldOffers millions of items
Books and musicDVDs and videosToys and video gamesElectronics and softwareHome improvement products
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Opening Case: Amazon.com (cont.)
Started business in 1995Sales
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 businesseszShops, Amazon marketplace, Amazon payment processing
Provide 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 searchingUseful product informationReviews, recommendations, and personalization
Broad selection and low pricesSecure payment system (1-Click order technology)Gifts departmentOnline communitySecured payments
Features
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Opening Case: Amazon.com (cont.)
Customer relationship managementCreates interesting and informative front-endHighly automated and efficient back-end supportPersonalized 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 performanceOverall losses rather than profitsAbility to move into new areas of business should move them toward profitability, but makes money from booksHigh level of customer service and customer loyalty adds value
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Opening Case: Amazon.com (cont.)
Diversification through business alliancesOnline sale of cars - greenlight.com Online health and beauty aids - drugstore.com Wireless phones – multiple business partnersToys - 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 paymentsAlso online retailing
Business-to-consumer (B2C)Ability to create direct relationships with consumer without intermediaries like distributors, wholesalers, or dealers
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Case Study From HSM Survey: Motivation for broadband networks
High capacity telecom-networks are essential to support services that require the exchange of complex multimedia documents and for integrating many B2C and B2B services. What types of Information Services do businesses want to participate in?
Video conferencing, working from home, remote education, group meetings, etc. Announcing products, taking orders, process payments, track orders, integrate with order replacement systems, integrate with partner trading systems, etc.
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The Survey
Do businesses feel they need broadband?Do they have plans to implement broadband technology?Are businesses satisfied with their network access technology?
What do businesses expect to do with it, broadband technology as it relates to their business activities? How do companies access their future use of e-business technology? For this Lecture we examine the last two questions
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Buisness repondents plans to invest in broadband technology
9
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15
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Dette året Neste år Om 2-3 år Vet ikke
Pe
rce
nta
ge
bu
sin
ess
re
po
nd
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ts15% of all businessrepondents in Q1 already havebroadband access.
65% of respondentsFrom Q8 have plansTo get broadbandWithin 2-3 years.
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Company participation in traditional business activities.
R=Rural location, U=Urban location, 1=activities today, 2=activities w ithin 2-3 years
0
20
40
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100
Info
rmat
ion
shar
ing
in th
eco
mpa
ny
Com
mun
icat
ion
with
subc
ontr
acto
rs
Com
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with
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fice
Edu
catio
n an
dle
arni
ng
Vid
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ence
s
Oth
er
Com
pani
es (
%)
R+1 R+2 U+1 U+2
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Company participation in e-business activities
R=Rural Location, U=Urban location, 1=e-business today, 2=e-business w ithin 2-3 years
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20
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100
Prese
ntat
ion
Adver
tisem
ent
Order
man
agem
ent
Sales
and
del
ivery
Produ
ct re
late
d se
rvice
s
Remot
e wor
k
Inte
grat
ion
with p
artn
ers
Other
Com
pani
es (
%)
R+1 R+2 U+1 U+2
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What do we learn from the HSM Case Study?
There is a progression for becoming an e-business. E-tailing is not just about B2C activities, but ties to the businesses back end operations and. It involves a full range of business processes, some that are also used in B2B activities.E-tailing must be integrated into the organizations Business Plan.
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E-Tailing and B2C Market Growth (cont.)
The B2C Market success is derived from:Offering quality merchandise at good pricesExcellent customer serviceConvenience
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E-Tailing and B2C Market Growth (cont.)
Characteristics of goods leading to high online sales volumes
Brand recognition and guaranteesDigitized productsFrequently purchased, inexpensive itemsWell-known items with standard specifications
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Consumer Purchase Processand Marketing Plan
Purchase decision processPrepurchase steps
Awareness of need for purchaseIdentify basic need or want
Actual purchaseEstablish decision criteriaSeek recommendations and informationMake purchase
Postpurchase stepsAssistance with installation or setupOnline help desks and instruction manuals
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Consumer Purchase Processand Marketing Plan (cont.)
Time-starved consumersShopping avoidersNew technologistsTime-sensitive materialists or click-and-mortar consumers
TraditionalistsHunter-gatherersBrand loyalistsSingle shoppers
Types of online shoppers
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Decision Criteria
Value proposition—customer service, better prices, higher qualityPersonal service—treat the customer as a unique individualConvenience—self-contained site that serves all the customer’s needsOther 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 availablePrice of the productsPromotion of products (advertisements and giveaways)Packaging and delivery
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Online Purchasing Aids
Shopping portalsComprehensive 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 itemsAutoBytel.com – carsZdnet.com/computershopper – computersOffice.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 assuranceE-tailers pay TRUSTe for use of sealHope consumers use seal as proxy for actual research about their site
BBBOnLineYearly license fees based on company’s annual revenue
Secure AssureYearly license fees based on company’s annual revenue
Ernst and YoungCreated its own service for auditing e-tailersOffers 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 toolsEscrow services—3rd party to assure quality
Proper exchange of money and goodsResearch informationPayment-processing support
Communities of consumersEpinions.com—searchable recommendations on productsPriceGrabber.com—comparison shopping
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E-Tailing Business Models
Subscription models: charge monthly or annual subscription fee for serviceTransaction fee models: charge service fee based on the level of transaction offeredAdvertising-supported models: charge fee to advertisers instead of customersSponsorship 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 consumersManufactures can sell directly to customers
Disintermediation—removal of business process layers in the value chainShortens the distribution chain
Eliminates inefficienciesShortens delivery timeBuilds 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 sitesPhysical storeMay include mail-order or catalog salesMultichannel store operates both
Physical storeE-tail site
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ODDS: Grocery Market Case
On-Demand Delivery Services (ODDS)Own fleet of delivery vehicles
Regular deliveries (weekly bases)Delivery within short time period (1 hour or same day)
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ODDS: Grocery Market Case (cont.)
Potential online grocery shoppersShopping avoidersNecessity users—limited by their ability to shopNew technologistsTime-starved consumersResponsible consumersTraditionals
Repeat customersExample: Parknshop in Hong Kong
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Digital Delivery
Digital (“soft”) goodsMusic, 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 cardDownload from Web site after payment
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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 computersPhenomenal growth of Napster communityNew version of its file-swapping software includes a “buy button” linked to CDNowMay be beneficial to overall music sales as individuals easily sample a broader range of music
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Digital Delivery (cont.)
New developmentsCustom-publishing music CD sites—collection of personal favoritesDisintermediation 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 strategiesSpeak with one voice—link all back-end systems to create an integrated customer experienceEmpower the customer—powerful channel for service and informationLeverage the channels—offs advantages of each channel to customers from all channels
Return item purchased online at physical storeOrder 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 productsCustomers can perform powerful searches to find most appropriate productsOffers extensive amount of information on electronics etc., organized very flexiblyOnline 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 centersAmazon failed in the toy market lacking supplier relationships with toy manufacturersAlliance allows each partner to leverage each others core strengthsInnovative model still working out problems
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Disintermediation & Reintermediaries
Disintermediation—manufacturer sells directly to consumerReintermediaries—new intermediary roles in the digital environment offer new ways to:
Reach new customersBring value to customersGenerate revenues
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Channel Conflict & Personalization
Channel conflict—members antagonistic over:
IncentivesRewardsPoliciesSupport
Personalization—custom designed marketing plan
Tailored to buying patternsAppeal to sense of valueExcellent customer serviceMass customization
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E-Tailing : Lessons Learned
Profitability—online marginal sales don’t lead to marginal profitsBranding—drive to establish brand can lead to excessive spendingPerformance—Web sites need to function in a fast, user-friendly mannerStatic design—dynamic sites with rich databases of information appeal most to customers