ch11 - 7e - e-commerce retailing and services

Online Retail and Services

CHAPTER 11

Major Trends in Online Retail

• Social shopping plays important roles• Online retail will surpass MOTO (mail order/telephone order)• Buying online becomes everyday experience, more multi-

seasonal, and less gift-oriented• More selection of goods• Average annual amount of online purchases increase• Improved shopping experience and more interactive• Retail intermediaries strengthen, retailers become efficient in

integrating multiple retailing channels• Personalized goods become financially successful, especially

in apparel• Half of online shopping and 1/3 of online purchases occur

at work

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The Retail Industry

• The movement toward “product-based services”, added value to the physical products, makes less clear-cut between a good and a service

• The use of the Internet for business still differ– Sales channel– Informational tool

• MOTO is most similar to the online retail sales sector

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US Retail Industry

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E-commerce Retail: The Vision

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The Truth

• The truth:– Has not been blown to bits, disintermediated,

or revolutionized– Consumer is not primarily price driven, but

instead considers brand name, trust, reliability and delivery time

– New venue for multi-channel firms that have a strong offline brand

– New opportunities for entirely new firms using new business models and new online products

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The Online Retail Sector Today

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The Online Retail Sector Today

• Account for 3% of total retail market• Top 15 retailers account for 1/3 of all online

retail• Challenges: (Read Table 9.2)

– Pure-play• Turn visitors into customers

– Click-and-mortar• Integrate offline and online channels so customers

can move seamlessly from one to another environment

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Multi-Channel Integration

• Integrate Web operations with physical store

• Pure-play may develop physical retail stores– E.g. eBay drop-off stores by some local

entrepreneurs

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Multi-Channel Integration Methods

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E-tailing Business Models

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E-tailing Business Model

• Virtual Merchant– Single-channel Web firms

• Build business and brand name from scratch, quickly• Totally online stores

– Confront many virtual merchant competitors– Large cost in building and maintaining a Web site– Adopt low cost and convenience strategies

• Gross margins are low• High customer acquisition costs

– E.g. Amazon.com

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E-tailing Business Model

• Multi-Channel Merchants: Brick-and-Clicks– Have network of physical stores as their primary retail

channel• Have advantages such as a brand name, national customer

base, warehouses• High cost of physical buildings and large sale staffs

– Acquiring customers is less expensive– Challenges in coordinating prices across channels and

handling returns of Web purchases at their retail outlets

– Very thin margins– E.g. Wal-Mart, JC Penny, Sears

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E-tailing Business Model

• Catalog Merchants Have national offline catalog operation

High costs for printing and mailing

Then developed online capabilities Centralized fulfillment and call centers

Have highest margins because of very efficient operations

Some diverse their channels either by building stores (LL Bean) being bought by store-based firms (Sears purchased Lands’

End) building a strong Web presence

E.g. Lands’ End, L.L. Bean, Eddie Bauer, Victoria’s Secret, Lillian Vernon

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E-tailing Business Model

• Manufacturer-Direct– Single or Multi-channel manufacturers

• Sell directly online to consumers without intervention of retailers

– Not generally be successful (except computer hardware)

• Face channel conflict

– Switching from a supply-push model to demand-pull model has proved difficult for traditional manufacturers

– Lower cost structure than even catalog merchants– E.g. Dell, HP, Gateway, IBM, Apple

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READ MORE

• E-Commerce in Action: Amazon.com

• Examples of Web Sites in each Business Model

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