The retail perspective:online retailing

This section explores online shopping from the retailer’s perspective. More specifically, it
considers the development of the online trading environment and online retailing activities,
trading formats and strategies and the strategic implications of trading online in consumer
markets.
Development of Online retailing
In the early 1990s, when the development of the Internet as a trading environment began with the
first exchanges of commercial email, traditional retailers had little interest in trading online.
However, for many retailers it was considered as a remote ‘geekish’ environment used solely by
computer experts and scientists. It was not until the mid-1990s that larger retail companies began
to consider how the Internet might impact on trade in the future and the challenges they might
face.
In 1995, few retailers considered the Internet to be important as a channel to market, but
given the potential of Internet technologies to radically reconfigure the underlying processes of
retailing, and because of the highly dynamic and innovative nature of the electronic marketplace,
some companies began to test out online trading. Tesco began selling chocolates and flowers,
and soon afterwards Sainsbury’s and Dixons launched websites. Retailers in well-developed
nations, particularly in the US and northern Europe, have spent recent years working out how to
best use this new digital phenomenon to support and develop retail trading.
By 2008 most retailers considered it essential to have a website and many offer their
customers the option to shop online and where relevant, reserve and collect in-store. In 2015
online retailing has become increasingly popular and important to retailers and consumers
around the world. Read Digital marketing insight 11.4 to see how some retailers have made a
difference to the development of online retailing.
Online Retail Formats and Strategic Approach
The introduction of online shopping has made classifying retailers by operational formats an
increasingly complex task. Traditionally, retailers are classified by: types of retail organisation
(e.g. multiples, independent, cooperative) and format (e.g. store-based, home-based), and these
features of the operation can also be modified by the breadth and depth of product range offered,
target markets served and number of outlets operated. Arguably, online shopping formats have
evolved as part of the natural progression of the retail lifecycle. Davidson et al. (1976)
introduced the idea of the retail lifecycle to explain the evolution of forms of retailing over time.
Based on the premise that styles of retail operation have a lifecycle in much the same way
products do and will start from an introductory phase where the operational style is innovative,
and then move through into a growth stage as the business expands, into a maturity stage where
the company begins to see greater profitability and then finally into a decline stage, where the
business is overtaken by more innovative competitors offering different retail styles and
operational formats.
Operational strategies
E-commerce sparked new thinking about how computer networks might facilitate and increase
trade in both business and consumer markets. In the retailer sector new operational strategies
were devised which incorporated retail operations and Internet technology. To begin to
understand the operational styles and strategies of online retailers it is important to consider three
main operational categories:
 Bricks-and-clicks retailers are generally long-established retailers operating from bricks-
and-mortar stores in, say, the high street and then the Internet is integrated into their
businesses either strategically or tactically as a marketing tool or a sales channel.
According to Dennis et al. (2004), online shoppers prefer shopping at websites operated
by established high-street retailers as they understand what a brand means in terms of
value and the physical part of the operation gives an increased sense of security.
 Clicks-and-mortar retailers tend to be virtual merchants and design their operating format
to accommodate consumer demands by trading online supported by a physical
distribution infrastructure. Virtual channels have distinct advantages over traditional
marketing channels in that they potentially reduce barriers to entry. The location issue,
considered to be the key determinant of retail patronage (Finn and Louviere, 1990), is in
the physical sense reduced, along with the need for sizeable capital investment in stores.
The best-known virtual merchant using this format is Amazon.com, the world’s largest
online bookstore.
 Pureplay retailers – ‘clicks-only’ or virtual retailers operate entirely online. In reality it is
almost impossible for a business to operate online without a point of access to the
Internet. Therefore, generally speaking, the term ‘pureplay’ refers to retailers who do not
have fixed-location stores and or own physical operational support systems, e.g.
distribution warehouses. While this category has produced some very innovative retailers,
in reality few retailers actually outsource all warehousing, picking, packing, shipping,
returns and replenishment requirement. Perhaps the key difference between these two
companies is that one sells products and the other services. In the case of services, the
customer takes themselves to the point of consumption rather than having goods
delivered to their door.

As retailers develop their usage of the Internet for providing information, customer services
and online sales it becomes a retail channel. This term was introduced by Doherty et al.
(1999) to describe companies’ multi-purpose adoption of the Internet, using it as both a
communication and transactional channel concurrently in business-to-consumer markets.
Traditionally the term channel describes the flow of a product from source to end user. This
definition implies a passive unidirectional system whereby the manufacturer or producer
markets through a wholesaler or retailer to the consumer. This move may also suggest a shift
towards a bidirectional retailer–consumer relationship, in which more power accrues to the
customer (Hagel and Armstrong, 1997). As a result of the technological capacity, e-retailers
are becoming increasingly creative with how they are using the Internet and associated
digital technologies to serve the needs of their customers. A high proportion of customers are
 multichannel customers who combine research based on use of a website with physical stores
when making a purchase.
Furthermore, the steady growth of online retailing over the last two decades through the
applications of these three operational strategies and innovation in mobile technologies and
use of social media has influenced the way shoppers wish to connect to their preferred type
of shopping. Indeed, according to a report commissioned by eBay, connected consumers are
driving the development of retailing as ‘consumers want to be able to buy anytime and
anywhere’ (Guardian, 2015). What this means is that shoppers are interacting with retailers
across different channels. As a result it is important not just to operate with one of the three
main operation strategies described earlier but to develop a hybrid model which allows
shoppers to engage with the brand, products and services at every possible touchpoint in their
shopping journeys. This new operational strategy is called omni-channel retailing.
Omni-channel retailing
The way people shop is changing as a result of the interventions of digital technologies and
social media. The basic consumer decision-making model discussed in Chapter 3 has become
more complex and as a result the shopper’s path to purchase can mean that they not only
encounter all of the traditional (pre-Internet) purchasing cues but also a range of new digitally
enhanced cues. Figure 11.7 shows the potential touchpoints a shopper might encounter prior to
purchase (Fulgoni, 2014), where they might encounter cues which can inform their purchase
decisions.
To begin with, digital technology has impacted on consumer decision making by
providing a vast store of information which shoppers’ access to inform their purchase choices.
So a path-to-purchase typically begins with an entry in a search engine or a visit to a retailer’s
website. Digital search tools play a vital role as consumers say they help to save time (Fulgoni,
2014). But digital marketers should not assume that consumers no longer interact with the
physical world as they are still likely to watch television and in doing so encounter more
traditional advertising. Equally, consumers are also likely to speak to family and friends both on-
and offline. Mobile devices facilitate interaction with actual products in physical stores. Indeed,
showrooming, where shoppers visit a store to touch and feel actual products but then make their
purchases online is becoming increasingly popular. The motivation to buy online is largely
driven by seeking lower prices (comScore, 2014). So physical retailers can no longer afford not
to operate online as well as offline because if they do they are likely to lose sales. Many physical
retailers are beginning to find ways to combat the potentially detrimental effects of
showrooming. For example, in November 2014 US department store retailer Macy’s, with over
850 physical stores, introduced a smart phone app which enabled shoppers to search to find out
whether a particular item was in stock in a local Macy’s store. Macy’s claims that every dollar it
invests in search marketing drives $6 towards a store purchase (Rodriguez, 2014).
How do retailers survive in the omni-channel world? According to Fulgoni (2014), there
are three priorities retailers should address:
 1. Eliminate silos and create seamless experiences for consumers all the way along the path-
to-purchase. Look for ways to bring together the on- and offline world and avoid isolated
marketing campaigns, which do not integrate. If there is any friction along the journey a
shopper is likely to defect to another supplier (e.g. if a retailer sells products at different
prices online to in-store);
2. Increase opportunities to digitally interact – by understanding more about their paths-to
purchase (e.g. provide incentives along the way through digital advertising and mobile
promotions).
3. Analyse and measure consumer behaviour at all touchpoints in order to develop deep and
insightful understanding in what is driving shoppers’ choices and purchase decisions.
Implication for E-retail marketing strategy
For the retailer, the impact of an increasing number of consumers and businesses accepting the
Internet and other forms of digital media as a stable channel to market is an increase in customer
expectations, which creates competitive pressures and challenges. In part, this has been caused
by new market entrants that have established their market position by, say, offering very wide
and deep product choice, dynamic demand-driven pricing or instantaneous real-time purchase
and delivery. The result is that retailers are required to adopt a more dynamic and flexible
approach to dealing with these raised expectations. Allegra Strategies (2005) identified a number
of performance gaps and Table 11.3 presents some of the most significant gaps and the
managerial implications.
For the e-retailers it is important to identify any performance gaps and develop strategies
which help to close them. For example, in the case of logistics, research has found that utilising
carriers (road haulage, air freight) that have higher levels of positive consumer awareness with
appropriate online strategies (i.e. offering a choice of carriers) can contribute to the consumer’s
willingness to buy and overall satisfaction with the online buying experience. Therefore,
development of strong awareness and brand image among consumers can prove to be a
beneficial strategy for both the e-retailer and the carrier, since consumers have traditionally
carried out the home delivery function themselves (i.e. shopping in ‘bricks-and-mortar’ retail
stores). Of course, this in itself raises the expectations of the care taken by the delivery agent,
which has the implication of having to introduce better handling of goods as well as the speed
with which the goods need to be delivered (Esper et al ., 2003). A further consideration is that
the retailer and the chosen carrier need to be able jointly to satisfy the consumer so that they may
benefit from co-branding.
How the online consumer accesses retailers’ goods has given rise to various operational
formats (discussed earlier in the chapter) and distribution strategies but this only forms part of
the retailer’s e-strategy. Nicholls and Watson (2005) discuss the importance of creating e-value
in order to develop profitable and long-term strategies and agree that logistics and fulfilment is a
core element of online value creation but at two other important platforms: firm structure, and
marketing and sales.
 Firm structure can be used strategically depending on organisational capabilities and
technology infrastructure. Porter (2001) described the emergence of integration and the potential
impact on e-value chains. Integration can ensure faster decision making, more flexibility and
attract suitable e-management specialists and capital investment (Nicholls and Watson, 2005). In
the case of the UK grocery sector, larger retailers have adopted different approaches towards
structuring their online operations. (See Case study 11 for a detailed discussion of how ASOS
has reinvented fashion retailing online.)
Marketing and sales can be used in customer-centric value creation strategies in the form
of interactive marketing communications strategies (see Chapter 9 for a detailed discussion) and
revenue streams. Indeed, according to Dennis et al. (2004), there are four revenue stream
business models, which in turn are based on advertising, merchandising and sales, transaction
fees and subscriptions.
Strategic implications for retailers wishing to be successful online are far-reaching and
require a retailer to develop a carefully informed strategy, which is guided by a business model
that can satisfy corporate objectives through deriving value from corporate capabilities while
effectively meeting the expectations of the online consumer. The target market and the product
category can have a significant influence on success.
In conclusion, it is now widely acknowledged that there is a need for a company to have a
coherent e-retail strategy underpinned by a clear vision of how to create sustained competitive
advantage if a business is to gain the maximum benefits from operating online. An online
retailer’s strategy is likely to be affected by the category and operational strategy it adopts, the
type of products and services it sells and the market segments it chooses to serve. Traditional
offline retailers will need to defend their existing market share as new entrants online are
increasingly shaping the future of the Internet as a retail environment. Retailers need to ensure
that the value created by online retailing is additional rather than a redistribution of profitability.
It has been suggested that by removing the physical aspects of the retail offer the Internet
increases competition.