Chapter 2 Retailing in Electronic Commerce Prentice

Chapter 2 Retailing in Electronic Commerce © Prentice Hall, 2000 1

Learning Objectives z. Define the factors that determine the business models of electronic marketing z. Identify the critical success factors of direct marketing z. Design the desirable relationship in a direct marketing setting z. Analyze the critical success factors of electronic intermediaries z. Identify the typical products that sold well in the electronic market © Prentice Hall, 2000 2

Learning Objectives (cont. ) z. Observe the reactive strategy of traditional department stores z. Discuss whether electronic commerce should always target global markets z. Describe the consumer’s shopping procedures on the Internet z. Discuss the types of aiding-comparisonshopping devices z. Describe the impact of EC on disintermediation and re-intermediation in retailing © Prentice Hall, 2000 3

Overview of Electronic Marketing Structure z. Consumer-oriented Electronic Marketing (B 2 C) y. Mostly online; on the Internet y. Growing offline too, mainly by using smart cards, although it is still experimental z. Business-oriented Electronic Marketing (B 2 B) y. Needs more precise record keeping, trackability, accountability, and formal contracts, usually with high volume of transactions and large amount payments © Prentice Hall, 2000 4

Advantages of Electronic Marketing z. Customers can order from cyberstores 24 hours a day, 7 days a week from any place in the world y. Direct marketing y. Customization y. Online customer service y. Electronic shopping malls: x. Intermediaries (e. g. Internet Mall) x. Stores (e. g. Amazon, J. C. Penney Online) y. Electronic intermediaries y. Global marketing © Prentice Hall, 2000 5

Forecast of the B 2 C Electronic Markets Forecasting Institutions 1997 2000 IDC VSAComm Veri. Fone Actif Media Killen & Assoc. Yankee Jupiter E-land EU USA EITO AEA/AU Hambrecht & Quest Forrester 1, 000 48 350 436 117, 000 3, 500 65, 000 46, 000 775, 000 144, 000 580 10, 000 228, 000 850 45 450 200 363 200 1, 170 518 200, 000 45, 000 23, 200 6, 579 [Source: OECD, 1997] Initial Forecast of B 2 C Electronic Market Size © Prentice Hall, 2000 6

Forecast of the B 2 C Electronic Markets (cont. ) z. Kinds of items sold Items Apparel Gifts/flowers Books Food/drink Clothing Entertainment Subscription services Pornography Music Online games Consumer finance Consumer insurance (Unit: Millions of U. S. Dollars) 1997 2000 46 322 45 658 16 Not available 39 336 89 322 85 1, 250 120 966 52 Not available 9 186 127 1, 013 68 Not available 30 1, 110 [Source: OECD, Sept. 1997] Initial Forecast of B 2 C Electronic Market Segments © Prentice Hall, 2000 7

Forecast of the B 2 C Electronic Markets (cont. ) z. What sells on the Internet? y. Items with high brand recognition y. Goods that can be transformed to digitized goods like books, music, and video y. Items with security guarantee given by highly reliable or known vendors y. Relatively cheap items y. Repetitively purchased items such as groceries y. Commodities with standard specification y. Items whose operating procedures can be more effectively demonstrated by a video y. Packaged items which are well known to customers and which cannot be opened even when customers physically visit the store © Prentice Hall, 2000 8

Business Models of Electronic Marketing Direct Marketing Manufacturers Vs. Indirect Marketing Manufacturers Active Strategic Posture Vs. Reactive Strategic Posture Global Marketing Vs. Regional Marketing Electronic Mall Vs. Electronic Store Sales Vs. Customer Services Full Cybermarketing Vs. Partial Cybermarketing Electronic Store Vs. Electronic Broker Generalized Mall Vs. Specialized Mall/Store © Prentice Hall, 2000 9

Business Models of Electronic Marketing (cont. ) z. Proactive Vs. reactive strategic posture toward cybermarketing y. Proactive strategic posture toward cybermarketing xa company’s main distribution channel is the Internet, and internal management such as inventory and operations management is focused to affect the benefit of cybermarketing y. Reactive strategic posture toward cybermarketing xthe traditional physical distribution channel is left as the company’s main distribution channel even though the company has opened an online distribution channel z. Global Vs. regional marketing © Prentice Hall, 2000 z. Sales Vs. customer services © Prentice Hall, 2000 10

Direct Marketing z. Active and full direct Marketing Dell Computer Corporation Case y. Founding spirit of dell: telemarketing y. Astonishingly high growth and returns y. Revenue via the Internet y. Dell’s products on the Internet © Prentice Hall, 2000 11

Direct Marketing (cont. ) z. Dell’s Critical Success Factors y. Price competitiveness owing to masscustomization and direct marketing y. Database marketing and customer intimacy y. Global reach and value added services at a single contact point y. High reliability and reputation y. Delivery support y. Advanced web applications © Prentice Hall, 2000 12

Direct Marketing (cont. ) z. Reactive and Partial Direct Marketing y. Sell their products mainly through traditional channels like department stores, discount stores, and franchises y. Ford Case xincluding dealers as partners is optimal because orders that are received directly by the automakers may not be physically fulfilled without the cooperation of dealers xthe received orders can then be assigned to the nearest dealer who owns the desired car in the inventory xthe dealer’s inventory information should be shared by automakers through a common network © Prentice Hall, 2000 13

Direct Marketing (cont. ) z. Reactive and Partial Direct Marketing y. Ford’s reactive direct marketing model (procedure) Then the Online Chooseoption leaseor you the budget, You can change. Shopping Service options will provide Decidedealer online by Selectoptionswillofpackage(s) Add other individualstyle buy, Selectwhether tocontact truck The the a the body System Search brand accommodate the to car or Pickinterior upholstery that paint color taste Send the “Vehicle forexterior suits your the your favorite financing the dealer Apply Summary” to to buildwith and dealer Paymentdesire state you configured with a price the aidcomfortable, the. Summary” your youavailability ofconfiguration most finalize thecity, you customized vehicle andwith a appeals Calculator System thatname, to or of “Vehicle you that interests vehicle you most useful y. Ford supports a pre-owned showroom in the following way : Select Enter. Confirmyour deliveryoptions Choose a. Enterpersonal information Explore. Search. Extendedcode and Plan a. Test drive and your order dealershipyourtest-drive your for accept Service delivery Secure the financing Confirmyou vehicle leasing or inventory Ford Print ZIP delivery order © Prentice Hall, 2000 14

Online Customer Service z. Provided in conjunction with online sales z. Provided to products which are sold offline z. Example: service and support homepage of Hewlett Packard (HP) z. By using computer telephone integration (CTI) technology, the same screen that a customer sees can be automatically displayed to the human agent (and vice versa) who responds to the customer’s call watching the online data about the customer © Prentice Hall, 2000 15

Active Electronic Intermediaries z. Pure electronic mall y. Company’s retailing business exists only on the Internet y. Electronic distributors xtake full responsibility of fulfilling orders and collecting payments y. Electronic brokers xassist the search process of finding the appropriate products and their vendors z. Partial electronic mall y. Electronic mall as one of existing distribution channels © Prentice Hall, 2000 16

Active Electronic Intermediaries (cont. ) z. Generalized Electronic Intermediaries y. Examples : Choice Mall, and i. Mall y. Provide a directory, keyword search engine, message encryption, optional Web site hosting service and a common platform of electronic payments y. Necessary factors to make shopping successful x. Screening quality and reliability for assurance • customers need a reliable screening capability of quality and reliability of brands and companies • e-brokers should create a trusted third party x. Competing electronic channels • several electronic channels help in finding the items needed • e-brokers should provide some differentiated attraction © Prentice Hall, 2000 17

Active Electronic Intermediaries (cont. ) z. Specialized Electronic Distributors y. Cyber Bookstores x. Amazon, Barnes and Noble y. Cyber CD Stores x. Columbia House, Music Boulevard, CD Universe, and CDNow y. Digitized Products and Services Stores x. Software, games, CDs, and videos y. Cyber Flower Stores x 1 -800 -FLOWERS © Prentice Hall, 2000 18

Reactive Electronic Department Store z. The J. C. Penney Case y. The Internet-based revenue amounts to only 1 to 2% of $30. 5 billion total sales of 1997 (3. 5% in 1999) y. Updating prices and adding new items to the electronic catalogs is convenient and inexpensive y. Overcoming the limitations of paper catalogs without incurring extra distribution cost © Prentice Hall, 2000 19

Reactive Electronic Department Store (cont. ) z. Electronic Department Stores Worldwide y. Marks & Spencer in the U. K. , La Redoute in France, Jusco in Japan, Nordstrom in the U. S. A. , and Lotte and Hyundai in Korea y. Common strategy is finding significant benefits from merchandising online y. Offering electronic service on the Internet is a supplementary channel of advertisement y. By 2000, 3. 5% of all U. S. major retailing will be done online © Prentice Hall, 2000 20

Regional Shopping Service z. Peapod Case y. The leading Internet supermarket, providing consumers with broad product choices and local delivery services y. Provide pictures of items, nutritional contents, past purchase records y. Users: middle and upper class people, some of whom are single parents, and all of whom are very busy. Also sick and elderly people or those without transportation. $4. 95/month membership fee, and $6. 95 service free + 5% of the purchased amount = cost of delivery service © Prentice Hall, 2000 21

Procedures for Internet Shopping : The Consumer’s Perspective y. Preliminary requirement determination to meet the needs y. Search for the available items that can meet the requirements y. Compare the candidate items with multiple perspectives: specification, price, delivery date, and other terms and conditions © Prentice Hall, 2000 22

Procedures for Internet Shopping : The Consumer’s Perspective (cont. ) y. Place an order y. Pay the bill y. Receive the delivered items and inspect; possibly while using y. Contact the vendor to get service and support, or to return if disappointed © Prentice Hall, 2000 23

Aiding Comparison Shopping z. Search hypertext files by agents z. Search in a web-based database both by human and software agents within an e-mall z. Comparable item retrieval and tabular comparison z. Comparisons over multiple malls z. Comparisons as a multiple criteria decision making © Prentice Hall, 2000 24

The Impact of EC on Traditional Retailing System z. Disintermediation and Re-intermediation y. Disintermediation — the removal of organizations or business process layers responsible for certain intermediary steps in a given value chain xeliminating the traditional intermediaries, such as wholesalers, distributors, and retailers, to reduce the cost y. Re-intermediation — the shifting or transfer of the intermediary functions, rather than the complete elimination xintermediation such as electronic shopping malls, directory and search engine service, and comparison aids using agents creates the role of re-intermediation © Prentice Hall, 2000 25

The Impact of EC on Traditional Retailing System (cont. ) z. Impact on Manufacturer’s Distribution Strategy y. Manufacturer’s monopolistic Internet-based distribution: Levi’s does not allow any one else to sell the Levi’s product on the Internet (policy changed in 1999). y. Coexistence with the dealers: This is the case in car distribution. y. Regionally mixed strategy: Nike sells on the Internet, but only in the U. S. A. y. Mass Customization for Make-to-Order: Manufacturers have to be adaptive to the customized orders of ultimate consumers. This means the manufacturer should be ready for mass customization. © Prentice Hall, 2000 26

Managerial Issues z. From a manufacturer’s point of view: Fully committed to direct marketing, restructuring the current manufacturing and distribution systems OR © Prentice Hall, 2000 Regard the electronic store as an additional channel of distribution 27

Managerial Issues (cont. ) z. From an intermediary’s point of view: Commit to the directory service OR Retailing a specialized breed of items z. For existing retailer in the physical space: y. How to transform its business posture to get the highest possible customer satisfaction at a minimum operating cost? © Prentice Hall, 2000 28