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Chapter 2
Retailing in
Electronic Commerce

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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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❚
Observe the reactive strategy of traditional
department stores
❚

Discuss whether electronic commerce should
always target global markets
❚
Describe the consumer’s 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
Learning Objectives (cont.)

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


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Advantages of Electronic Marketing
❙
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
❚
Customers can order from cyberstores 24
hours a day, 7 days a week from any place in
the world

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Forecast of the B2C Electronic Markets
Initial Forecast of B2C Electronic Market Size
Forecasting Institutions 1997 2000

IDC 1,000 117,000
VSAComm 48 3,500
VeriFone 350 65,000
Actif Media 436 46,000
Killen & Assoc. 775,000
Yankee 850 144,000
Jupiter 45 580
E-land 450 10,000
EU 228,000
USA 200
EITO 363 200,000
AEA/AU 200 45,000
Hambrecht & Quest 1,170 23,200
Forrester 518 6,579
[Source: OECD, 1997]

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❚
Kinds of items sold
Forecast of the B2C Electronic Markets (cont.)
(Unit: Millions of U.S. Dollars)
Items 1997 2000
Apparel 46 322
Gifts/flowers 45 658
Books 16 Not available
Food/drink 39 336
Clothing 89 322
Entertainment 85 1,250
Subscription services 120 966

Pornography 52 Not available
Music 9 186
Online games 127 1,013
Consumer finance 68 Not available
Consumer insurance 30 1,110
[Source: OECD, Sept. 1997]
Initial Forecast of B2C Electronic Market Segments

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❚
What sells on the Internet?
Forecast of the B2C Electronic Markets (cont.)
❙
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
Full Cybermarketing
Vs.
Partial Cybermarketing
Electronic Store
Vs.
Electronic Broker
Electronic Mall
Vs.
Electronic Store
Active Strategic Posture
Vs.
Reactive Strategic Posture
Global Marketing
Vs.
Regional Marketing
Sales
Vs.
Customer Services
Generalized Mall

Vs.
Specialized Mall/Store

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❚
Proactive Vs . reactive strategic posture toward
cybermarketing
❙
Proactive strategic posture toward cybermarketing
❘
a 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
❙
Reactive strategic posture toward cybermarketing
❘
the traditional physical distribution channel is left as the
company’s main distribution channel even though the
company has opened an online distribution channel
❚
Global Vs. regional marketing
❚
Sales Vs. customer services
Business Models of Electronic Marketing (cont.)
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❚
Active and full direct Marketing
Direct Marketing
Dell Computer Corporation Case
❙
Founding spirit of dell: telemarketing
❙
Astonishingly high growth and returns
❙
Revenue via the Internet
❙
Dell’s products on the Internet

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Dell’s Critical Success Factors
Direct Marketing (cont.)
❙
Price competitiveness owing to mass-
customization 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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❚
Reactive and Partial Direct Marketing
Direct Marketing (cont.)
❙
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 dealer’s inventory information should be shared by
automakers through a common network

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❙
Ford’s reactive direct marketing model (procedure)

Direct Marketing (cont.)
❚
Reactive and Partial Direct Marketing
Select the brand of car or truck
that interests you
Choose the body style
you most desire
Select the option package(s)
that appeals to you
Add other individual options
to build your most comfortable, useful customized vehicle
Pick your favorite exterior paint colorPick the interior upholstery that suits your taste
Then the Online Shopping Service System will provide
you with a “Vehicle Summary”
You can change options to accommodate the budget,
and finalize the configuration
Decide whether to lease or buy,
with the aid of Payment Calculator System
Search a dealer online by
dealer name, city, or state
Send the “Vehicle Summary” to the dealer
The dealer will contact you
with a price and availability of the vehicle you configured
Apply for financing
❙
Ford supports a pre-owned showroom in the following way :
Enter your ZIP codeSearch the inventoryEnter your personal informationSecure your vehicleSelect a dealership for test-drive and deliveryChoose a Ford Extended Service PlanExplore leasing or financing optionsPrint your orderConfirm your orderConfirm you deliveryTest drive and accept delivery

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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 customer’s call watching the online data
about the customer

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Active Electronic Intermediaries
❚
Pure electronic mall
❙
Company’s 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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❚
Generalized Electronic Intermediaries
Active Electronic Intermediaries (co nt.)
❙
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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Specialized Electronic Distributors
Active Electronic Intermediaries (co nt.)
❙
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)
Catalog
13%
Drug Stores
32%
Insurance
3%
Internet-
based
1%
Department
Stores
51%
❙
Updating prices and adding
new items to the electronic
catalogs is convenient and
inexpensive
❙
Overcoming the limitations of
paper catalogs without
incurring extra distribution cost


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❚
Electronic Department Stores Worldwide
Reactive Electronic Department Store (cont.)
❙
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 Consumer’s 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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❙
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
Procedures for Internet Shopping :
The Consumer’s Perspective (cont.)

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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