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Chapter 3
Retailing in Electronic Commerce
(E-Tailing)
Opening Case: Amazon.com
 B2C business model where customers look for a:
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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
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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 million
 2000 = $1.8 billion
 Products
 1999 = 5 million titles
 2000 = 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 processing
 Provide the opportunity for small businesses to
develop custom storefront
 Storefronts are supported by Amazon’s backend
order fulfillment processing
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Opening Case: Amazon.com (cont.)
Features
 Easy browsing and
searching
 Useful product
information
 Reviews,
recommendations,
and personalization
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 Broad selection and low
prices
 Secure payment system (1Click order technology)
 Gifts department
 Online community
 Secured payments
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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 name
 Customer wish lists available
 E-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
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Brand recognition and guarantees
Digitized products
Frequently purchased, inexpensive items
Well-known items with standard
specifications
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Consumer Purchase Process
and 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 3-1
The Consumer Purchase Decision
Process
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Consumer Purchase Process
and Marketing Plan (cont.)
Types of online shoppers
 Time-starved
consumers
 Shopping avoiders
 New technologists
 Time-sensitive
materialists or clickand-mortar
consumers
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Traditionalists
Hunter-gatherers
Brand loyalists
Single 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 sellers
 Shopping comparison sites
 Comparison tools are available
 Niche oriented
 Specialize in a certain line of products (dogtoys.com)
 Some collect referral fee only
 Others 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
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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.)
Trust verification sites—evaluate and verify
trustworthiness and integrity of e-tailers
 TRUSTe seal of assurance
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 Secure Assure
E-tailers pay TRUSTe for use of
seal
Hope consumers use seal as
proxy for actual research about
their site
 BBBOnLine
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Yearly license fees based on
company’s annual revenue
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Yearly license fees based on
company’s annual revenue
 Ernst and Young
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Created its own service for
auditing e-tailers
Offers some guarantee of
integrity of business practices
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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 3-2
Disintermediation 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 customers
 Disintermediation—removal of business process layers
in the value chain
 Shortens the distribution chain
– Eliminates inefficiencies
– Shortens delivery time
– Builds closer relationships with consumers
 Click-and-mortar
 Additional marketing channel to the conventional one
 Effectively 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 products
 Large number of consumers
 Specialty or niche e-tailers (CatToys.com)
 One specific product area
 High demand items in the area
 Effective 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 store
 E-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 3-2
Digital 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 magazines
 Newspapers (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-Mortar
Strategies (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-Mortar
Strategies (cont.)
 Amazon and Toys R Us: alliance of pureplay 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:
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Incentives
Rewards
Policies
Support
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 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
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First-mover advantage or wait and learn
Strategic positioning
Trust
New risk exposure
Financial viability
Successes
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