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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