Chapter 2

Retailing in Electronic Commerce The King of E-Tailing
• The opportunity
– July 1995, e-tailing pioneer, offered books via an electronic catalog from its Web site ( – The company has continually enhanced its business models and electronic store by:
• • • • expanding product selection improving the customer’s experience adding services and alliances recognizing the importance of order fulfillment and warehousing The King of E-Tailing (cont.)
• Technology used
– has expanded in a variety of directions:
• offers specialty stores (professional and technical store) • expands its editorial content through partnerships with experts in certain fields • increases product selection with the (used and out-ofprint titles) • expands its offerings beyond books (June 2002 became an authorized dealer of Sony Corp. selling Sony products online) • today: a diversified retailer of products and services The King of E-Tailing (cont.)
– Key features of the superstore are:
• easy browsing, searching, and ordering • useful product information, reviews, recommendations, and personalization • broad selection • low prices • secure payment systems • efficient order fulfillment • personalization The King of E-Tailing (cont.)
– Enjoyable features:
• “Gift Ideas” section features seasonally appropriate gift ideas and services • “Community” section provides product information and recommendations shared by customers • “E-Cards” section, free animated electronic greeting The King of E-Tailing (cont.)
– Marketplace services:
• hosts and operates auctions • zShops service hosts electronic storefronts for a monthly fee • allowing small businesses the opportunity to have customized storefronts supported by the richness of’s order-fulfillment processing The King of E-Tailing (cont.)
– is recognized as an online leader in CRM
• informative marketing front ends • one-to-one advertisements • free posting of restaurant menus from thousands of restaurants • “Welcome back, Sarah Shopper” with recommendations of new books from the customers preferred genre based on previous purchases The King of E-Tailing (cont.)
• Sends purchase recommendations via e-mail to cultivate repeat buyers • Efficient search engine and other shopping aids • Customers can personalize their accounts and manage orders online with the patented ―OneClick‖ order feature including an electronic wallet The King of E-Tailing (cont.)
– In 1997, started an extensive affiliates program
• by 2002, the company had more than 500,000 partners that refer customers to • Amazon pays a 3 to 5% commission on any resulting sale • alliances with major “trusted partners” provide knowledgeable entry into new markets • allows it to sell cars online • connects to health and beauty aids • AT&T, Nextel and others suggest service plans for wireless phones The King of E-Tailing (cont.)
– September 2001 Amazon signed an agreement with Borders Group Inc
• allows’s users to pick up books, CDs, and other merchandise at Borders’ physical bookstores

– It is becoming a Web fulfillment contractor for national chains such as:
• Target • Circuit City The King of E-Tailing (cont.)
• The Results
– Is the number one e-tailer since 2001 generated $3.12 billion – Is becoming very successful in reducing its costs and increasing its profitability – Annual sales for have trended upward (over $5 billion in 2003) The King of E-Tailing (cont.)
– $15.7 million in 1996 to $600 million in 1998 to about $4 billion by 2002 – In 2003 the site offers over 17 million book, music, and DVD/video titles to some 20 million customers – Offers several features for international customers – In January 2002, declared its first ever profit—for the 2001 fourth quarter The King of E-Tailing (cont.)
• What can we learn…
– demonstrates the evolution of e-tailing – some of the problems encountered by e-tailers – solutions employed by to expand its business – the opportunities for e-tailing

Internet Marketing and Electronic Retailing (E-Tailing)
• Overview of e-tailing
– Electronic retailing (e-tailing): Retailing conducted online, over the Internet – E-tailers: Those who conduct retail business over the Internet

Internet Marketing and E-Tailing (cont.)
• Size and growth of the B2C market
– number of U.S. online buyers from 53.2% of all Internet users in 2001 to 6% by 2004 (90 million people purchasing online) – U. S. revenues from online B2C buying predicted to go from $73 billion in 2001 to $190 billion in 2004 – May 2002 sales of $9.8 billion in the first quarter of 2002 (up 19.3 percent from the first quarter of 2001) – annual 2002 sales estimated to be over $40 billion— 1.4 % of total retail sales, up from 1.1 percent in 2001 – average online shopper spent over $300 per quarter

Internet Marketing and E-Tailing (cont.)
• What sells best on the Internet?
– Computer hardware and software – Consumer electronics – Sporting goods – Office supplies – – – – – – – – Books and music Toys Health and beauty Entertainment Apparel Cars Services Others

Internet Marketing and E-Tailing (cont.)
• Characteristics of successful e-tailing
– high brand recognition (Lands’ End) – guarantee provided by highly reliable or well-known vendors (Dell) – digitized format (software) – relatively inexpensive items (office supplies) – frequently purchased items (groceries) – commodities with standard specifications (books), physical inspection unimportant – well-known packaged items that cannot be opened even in a traditional store (vitamins)

Electronic Marketplaces
• Markets play a central role in the economy facilitating the exchange of:
– – – – information goods services payments

• Markets create economic value for:
– buyers – sellers – market intermediaries – society at large

Electronic Marketplaces (cont.)
• Three main functions of markets
1. matching buyers and sellers 2. facilitating the exchange of information, goods, services, and payments associated with market transactions 3. providing an institutional infrastructure, such as a legal and regulatory framework, that enables the efficient functioning of the market

Electronic Marketplaces (cont.)
• In recent years markets have seen a dramatic increase in the use of IT—EC has:
– increased market efficiencies by expediting or improving functions – been able to significantly decrease the cost of executing these functions

• Marketspace: A marketplace in which sellers and buyers exchange goods and services for money (or for other goods and services), but do so electronically

Marketspace Components
• • • • • Customers Sellers Products Infrastructure Front end • Back end • Intermediaries • Other business partners • Support services

Marketspace Components (cont.)
• Digital products: Goods that can be transformed to digital format and delivered over the Internet

• Front end: The portion of an e-seller’s business processes through which customers interact, including the seller’s portal, electronic catalogs, a shopping cart, a search engine, and a payment gateway

Marketspace Components (cont.)
• Back end: The activities that support online ordertaking. It includes fulfillment, inventory management, purchasing from suppliers, payment processing, packaging, and delivery • Intermediary: A third party that operates between sellers and buyers

Types of Electronic Markets
• Electronic storefront: A single or company Web site where products and services are sold • Mechanisms necessary for conducting the sale:
– – – – – – electronic catalogs search engine e-auction facilities payment gateway shipment court customer services

Types of Electronic Markets (cont.)
• e-mall (online mall): An online shopping center where many stores are located
– some are merely directories – some provide shared services (e.g., – some are actually large click-and-mortar retailers – some are virtual retailers (e.g.,

Types of Electronic Markets (cont.)
• Types of stores and malls
– General stores/malls – Specialized stores/malls – Regional versus global stores – Pure online organizations versus click-andmortar stores

Types of Electronic Markets (cont.)
• e-marketplace:
An online market, usually B2B, in which buyers and sellers exchange goods or services; the three types of e-marketplaces are private, public, and consortia

• Private e-marketplaces:
Online markets owned by a single company; can be either sell-side or buyside marketplaces

• Sell-side e-marketplace:
A private e-market in which a company sells either standard or customized products to qualified companies

Types of Electronic Markets (cont.)
• Buy-side e-marketplace:
A private e-market in which a company makes purchases from invited suppliers

• Public e-marketplaces:
B2B markets, usually owned and/or managed by an independent third party, that include many sellers and many buyers; also known as exchanges

• Consortia:
E-marketplaces owned by a small group of large vendors, usually in a single industry

Information Portals
• Information portal: a single point of access through a Web browser to business information inside and/or outside an organization

Information Portals (cont.)
• Six types of portals
1. 2. 3. 4. 5. Commercial (public) portals Corporate portals Publishing portals Personal portals Mobile portals: a portal accessible via a mobile device 6. Voice portals: a portal accessed by telephone or cell phone

E-Tailing Business Models of Electronic Marketing
• • • • • Direct Marketing Versus Indirect Marketing Full Cybermarketing Versus Partial Cybermarketing Electronic Distributor Versus Electronic Broker Electronic Store Versus Electronic Shopping Mall Generalized E-mall/Store Versus Specialized Emall/Store • Proactive Versus Reactive Strategic Posture Toward Cybermarketing • Global Versus Regional Marketing • Sales Versus Customer Service

E-Tailing Business Models (cont.)

E-Tailing Business Models (cont.)
• Direct marketing by mail order companies
direct marketing: broadly, marketing that takes place without intermediaries between manufacturers and buyers; in the context of this book, marketing done online between any seller and buyer

E-Tailing Business Models (cont.)
• Proactive and Full Direct Marketing: The Dell Computer Case
– Founding Sprit of Dell: Telemarketing major business strategy since the birth of company – Revenue via the Internet – Dell’s Products on the Internet – Dell’s Critical Success Factors
• • • • Advanced Web application Price competitiveness owing to mass customization Database marketing and customer intimacy Global reach and value-added services at a single contact point • High reliability and reputation • Deliver support

E-Tailing Business Models
• Reactive and Partial Direct Marketing: Ford Case • Online Customer Service:
– Sellers understand their markets better because of the direct connection to consumers, and consumers gain greater information about the products through direct connection to the manufacturers – Example: Dell Computers—build-to-order approach of customization

E-Tailing Business Models (cont.)
• Retailing in online malls
– Referring directories
• directory organized by product type • catalog listings or banner ads at the mall site advertise the products or stores

– Malls with shared services
• consumer can find the product, order and pay for it, and arrange for shipment • hosting mall provides these services, but they are executed by each store independently

Problems with E-Tailing and Lessons Learned
• Reasons retailers give for not going online include:
– product is not appropriate for Web sales – lack of significant opportunity – too expensive – technology not ready – online sales conflict with core business

Electronic intermediaries
• Pure e-mall: implies that company’s retailing business exists only on the Internet. Pure e-mall can be classified into two categories electronic distributors or electronic brokers (e-brokers). • In contrast a company with Partial e-mall strategy regards the e-mall as one distribution business.

Reactive Electronic Department Stores
• JCPenney: The JCPenney Case • Electronic Department Stores Wordwide: Wal-Mart

Regional Shopping Service
• Peapod Case: Peapod inc is the leading Internet supermarket, providing consumers with broad product choices and local delivery services.

Procedure for Internet Shopping: The Consumer’s Perspective
1. Preliminary requirement determination 2. Search for the available items 3. Compare the candidate items with multiple perspectives 4. Place an order 5. Play for the goods 6. Reactive the delivered items and inspect their quality 7. Contact the vender to get after-service and support, or return the goods if disappointed

Aiding Comparison Shopping
• Search of hypertext files by agent: Bargainfinder ( . • Search in Web-Based database: Human and Software agents sharing information ( • Comparable item retrieval and tabular comparison • Comparison of multiple items from multiple malls • Comparison as multiple-criteria decision making

The Impacts of EC on Traditional Retailing Systems
• Industry structure
– Consumers are aware of competitor’s prices through searches; intermediaries become obsolete – Digitization of more products; reduction in shipping costs – Seller and customer activities converge in 1 place
• • • • • Marketing Order processing Distribution Payments Product development

The Impacts of EC on Traditional Retailing Systems (cont.)
• Disintermediation: The removal of
organizations or business process layers responsible for certain intermediary steps in a given supply chain

• Reintermediation: The process whereby
intermediaries (either new ones or those that had been disintermediated) take on new intermediary roles

The Impacts of EC on Traditional Retailing Systems (cont.)
– Disintermediation and reintermediation • Disintermediaries: match and provide information • Reintermediatiaries: provide value-added services (consulting)

Impact on Manufacturer’s Distribution’ Strategy
• Manufacturer’s monopolisite Internet-Based Distribution. • Coexistence with Dealers • Regionally mixed strategy. • Mass customization for make-to-order. • Powerful suppliers

Impacts on Trading Processes and Intermediaries (cont.)
• Potential Winners and Losers in EC
– Winners
• • • • • Internet access providers Diversified portal service providers EC software companies Proprietary network owners Others

Managerial Issues
1. Should we grab a first-mover advantage or wait and learn? 2. What should our strategic position be? 3. Are we financially viable? 4. Should we recruit out of town? 5. Are there international legal issues regarding online recruiting? 6. Do we have ethics and privacy guidelines? 7. How will intermediaries act in cyberspace? 8. Should we set up alliances?

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