Chapter 2

Retailing in
Electronic Commerce

Prentice Hall, 2000

Learning Objectives
Define the factors that determine the business
models of electronic marketing
Identify the critical success factors of direct marketing
Design the desirable relationship in a direct
marketing setting
Analyze the critical success factors of electronic
intermediaries
Identify the typical products that sold well in the
electronic market

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Learning Objectives (cont.)

Observe the reactive strategy of traditional
department stores
Discuss whether electronic commerce should
always target global markets
Describe the consumers shopping procedures
on the Internet
Discuss the types of aiding-comparison-shopping
devices
Describe the impact of EC on disintermediation
and re-intermediation in retailing
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Overview of Electronic Marketing Structure

Consumer-oriented Electronic Marketing (B2C)
Mostly online; on the Internet
Growing offline too, mainly by using smart cards, although it is still
experimental

Business-oriented Electronic Marketing (B2B)

Needs more precise record keeping, trackability,
accountability, and formal contracts, usually with
high volume of transactions and large amount
payments
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Advantages of Electronic Marketing

Customers can order from cyberstores 24
hours a day, 7 days a week from any place in
the world

Direct marketing
Customization
Online customer service
Electronic shopping malls:
Intermediaries (e.g. Internet Mall)
Stores (e.g. Amazon, J.C.Penney Online)

Electronic intermediaries
Global marketing

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Forecast of the B2C Electronic Markets

Forecasting Institutions
IDC
VSAComm
VeriFone
Actif Media
Killen & Assoc.
Yankee
Jupiter
E-land
EU
USA
EITO
AEA/AU
Hambrecht & Quest
Forrester

1997
1,000
48
350
436
850
45
450
200
363
200
1,170
518

2000
117,000
3,500
65,000
46,000
775,000
144,000
580
10,000
228,000
200,000
45,000
23,200
6,579
[Source: OECD, 1997]

Initial Forecast of B2C Electronic Market Size

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Forecast of the B2C Electronic Markets (cont.)

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
45
16
39
89
85
120
52
9
127
68
30

322
658
Not available
336
322
1,250
966
Not available
186
1,013
Not available
1,110
[Source: OECD, Sept. 1997]

Initial Forecast of B2C Electronic Market Segments

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Forecast of the B2C Electronic Markets (cont.)

What sells on the Internet?
Items with high brand recognition
Goods that can be transformed to digitized goods like
books, music, and video
Items with security guarantee given by highly reliable
or known vendors
Relatively cheap items
Repetitively purchased items such as groceries
Commodities with standard specification
Items whose operating procedures can be more
effectively demonstrated by a video
Packaged items which are well known to customers
and which cannot be opened even when customers
physically visit the store
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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

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Business Models of Electronic Marketing (cont.)

Proactive Vs. reactive strategic posture toward
cybermarketing
Proactive strategic posture toward cybermarketing
a companys main distribution channel is the Internet,
and internal management such as inventory and
operations management is focused to affect the benefit of
cybermarketing

Reactive strategic posture toward cybermarketing

the traditional physical distribution channel is left as the
companys main distribution channel even though the
company has opened an online distribution channel

Global Vs. regional marketing

Sales Vs. customer
services
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Hall, 2000

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10

Direct Marketing
Active and full direct Marketing
Dell Computer Corporation Case
Founding spirit of dell: telemarketing
Astonishingly high growth and returns
Revenue via the Internet
Dells products on the Internet

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Direct Marketing (cont.)

Dells Critical Success Factors
Price competitiveness owing to masscustomization and direct marketing
Database marketing and customer intimacy
Global reach and value added services at a
single contact point
High reliability and reputation
Delivery support
Advanced web applications
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Direct Marketing (cont.)

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

Reactive and Partial Direct Marketing
Fords reactive direct marketing model (procedure)

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Online Customer Service

Provided in conjunction with online sales
Provided to products which are sold offline
Example: service and support homepage of
Hewlett Packard (HP)
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 customers call watching the online data
about the customer
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Active Electronic Intermediaries

Pure electronic mall
Companys retailing business exists only on the
Internet
Electronic distributors
take full responsibility of fulfilling orders and collecting
payments

Electronic brokers
assist the search process of finding the appropriate
products and their vendors

Partial electronic mall

Electronic mall as one of existing distribution channels

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Active Electronic Intermediaries (cont.)

Generalized Electronic Intermediaries
Examples : Choice Mall, and iMall
Provide a directory, keyword search engine, message
encryption, optional Web site hosting service and a
common platform of electronic payments
Necessary factors to make shopping successful
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

Competing electronic channels

several electronic channels help in finding the items needed
e-brokers should provide some differentiated attraction
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Active Electronic Intermediaries (cont.)

Specialized Electronic Distributors
Cyber Bookstores
Amazon, Barnes and Noble

Cyber CD Stores
Columbia House, Music Boulevard, CD Universe,
and CDNow

Digitized Products and Services Stores

Software, games, CDs, and videos

Cyber Flower Stores

1-800-FLOWERS
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Reactive Electronic Department Store

The J.C. Penney Case
The Internet-based revenue
amounts to only 1 to 2% of
$30.5 billion total sales of
1997 (3.5% in 1999)

Insurance
3%

Internetbased
1%

Drug Stores
Updating prices and adding 32%

new items to the electronic

catalogs is convenient and
Catalog
inexpensive
13%
Overcoming the limitations of
paper catalogs without
incurring extra distribution cost
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Department
Stores
51%

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Reactive Electronic Department Store (cont.)

Electronic Department Stores Worldwide
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
Common strategy is finding significant benefits
from merchandising online
Offering electronic service on the Internet is a
supplementary channel of advertisement
By 2000, 3.5% of all U.S. major retailing will be
done online
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Regional Shopping Service

Peapod Case

The leading Internet supermarket, providing consumers

with broad product choices and local delivery services
Provide pictures of items, nutritional contents, past
purchase records
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
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Procedures for Internet Shopping :

The Consumers Perspective

Preliminary requirement determination to

meet the needs
Search for the available items that can
meet the requirements
Compare the candidate items with
multiple perspectives: specification, price,
delivery date, and other terms and
conditions
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Procedures for Internet Shopping :

The Consumers Perspective (cont.)

Place an order
Pay the bill
Receive the delivered items and inspect;
possibly while using
Contact the vendor to get service and
support, or to return if disappointed

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Aiding Comparison Shopping

Search hypertext files by agents
Search in a web-based database both by
human and software agents within an e-mall
Comparable item retrieval and tabular
comparison
Comparisons over multiple malls
Comparisons as a multiple criteria decision
making
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The Impact of EC on Traditional Retailing System

Disintermediation and Re-intermediation
Disintermediation the removal of organizations or
business process layers responsible for certain
intermediary steps in a given value chain
eliminating the traditional intermediaries, such as
wholesalers, distributors, and retailers, to reduce the
cost

Re-intermediation the shifting or transfer of the

intermediary functions, rather than the complete elimination
intermediation such as electronic shopping malls,
directory and search engine service, and comparison
aids using agents creates the role of re-intermediation
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The Impact of EC on Traditional

Retailing System (cont.)
Impact on Manufacturers Distribution Strategy
Manufacturers monopolistic Internet-based
distribution: Levis does not allow any one else to sell
the Levis product on the Internet (policy changed in
1999).

Coexistence with the dealers: This is the case in car

distribution.

Regionally mixed strategy: Nike sells on the Internet,

but only in the U.S.A.

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.
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Managerial Issues
From a manufacturers point of view:
Fully committed to
direct marketing,
restructuring the
current manufacturing
and distribution systems

OR

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Regard the electronic

store as an additional
channel of distribution

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Managerial Issues (cont.)

From an intermediarys point of view:
Commit to the
directory service

OR

Retailing a
specialized breed
of items

For existing retailer in the physical space:

How to transform its business posture to get the
highest possible customer satisfaction at a
minimum operating cost?
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