Electronic Commerce

and Retailing
 E-Retailing
 Retailing is expected to change with rapid
development of new online sales and
distribution channels that literally can be used
from anywhere, anytime- from work, school, a
hotel, car etc.
 In traditional model, the customer went to the
store & located the product. In online model,
the retailer seeks out the customer.
Internet Retailing is selling retail goods
or services through the Internet.
Also Known As: Internet Retail, Retail E-Commerce,
Online Retailing, E-Retail, E-tail, E-tailing
 Open Issues in E-commerce
 Globalization
 Contractual and
Financial Issues
 Ownership
 Barriers to E-commerce (U.S.):
Old retail inconveniences and
inefficiencies
Barriers

 Privacy and Security 1. Concern that credit card will be

stolen

Interconnectivity and
2. Item is still high cost

3. Item is very large
Interoperability 4. Personal sizing, fit are important

 Deployment 5. High shipping costs

0% 10% 20% 30% 40% 50% 60%

source: Ernst & Young
 Issues consider in developing
business model
Retailers need to consider the following issues in
developing business model:-
 Product issues
 S/W interface issues
 Process issues
 Pricing issues
 Payment issues
 Market penetration issues
Changing Retail Industry Dynamics
Factors affecting retail industry dynamics are:-
 Overbuilding & access supply
 Demographic changes
 Consumer behavior
 Technology improvements in electronic
Retailing
 Television retailing
 CD-ROM based shopping
 Online based shopping
Changing Retail Industry Dynamics
Overbuilding & excess supply
 With online retailing, constraints of time & space disappear.
 In 1980, period of overexpansion, profits were declining,
retailers reduce staff & minimizing merchandise to reduce
staff.
 In 1990, companies are under pressure to grow & produce
profit.
 The shortage of entry level workers means that retailers are
using under trained workers who are less able to emphasize
with shopper needs- result is that shopping centers are unable
to provide quality service.
Changing Retail Industry Dynamics
Demographic Changes
 Decline in amt. of time Americans are spending in shopping
malls.
 Reasons are:
 Time constraints
 Safety concerns
 Growing frustration
 Insufficient product information.
 Americans shopping channels are: HSN(Home Shopping
Network), CUC International.
 Need of family
 Lot of time wastage to pay in malls
Changing Retail Industry Dynamics
Television retailing
 Home Shopping Network (HSN) by America
 In 1994, HSN reached 65.8 million television households throughout
the united states, signals via cable, broadcast, dish, satellite etc.
 TV retail marketing are divided into segments : TV live, with a show
host who presents the merchandise & conveys information relating to
the product, including price, quality, features & benefits.
 Viewers place orders for products by calling a toll-free telephone
number.
 Merchandise delivered products within 10 days.
 Purchased item may be returned within 30 days with a full refund of
purchase price, including the original shopping & handling charges.
Changing Retail Industry Dynamics
CD-ROM based shopping
 Retailers can create their own disk at a cost of
between $10,000-$50,000 or participating in a
multiple marketer disk for a fee between $1,000-
$2,500 per megabyte of display space.
 The business ideas behind catalogs is: build name,
brand recognition for the stores & manufacturers,
help determine store expansion plans.
 CD-ROM catalog has multimedia capability & can
enable merchant to add sound, photos & full motion
video to a product presentation.
Changing Retail Industry Dynamics
Online Retailing
 American Online Services (AOL) offers 24 hr.
access to their own shopping environment.
 Home Shopping Network (HSN)
 Via internet 365*24*7 days.
 First-Generation B2C
 Main Attraction:
Lower Retail Prices
 “B2C Pure Plays”
could eliminate
intermediaries,
storefront costs, some
distribution costs, etc.
 Archetype:
www.amazon.com
 Mercantile Models from the
Consumer’s Perspective
 Mercantile Models formalize the interaction
between consumers & merchants.
 MM can be developed from two perspectives:
 Consumer side: sequence of activities a shopper takes
in purchasing a product or service.
 Retailer side: MM defines the order management cycle,
which specifies the activities within the organization
that must takes place in fulfilling the customer’s order.
 Phases of Consumer Mercantile
Model
 Prepurchase preparation phase includes search &
discovery for a set of products in the large information
space capable of meeting customer requirements &
product selection from a smaller set of products.
 Purchase consummation phase specifies the flow of
information & documents associated with purchasing
& negotiation with merchants for suitable items such
as price, availability & delivery dates.
 Postpurchase interaction phase includes customer
service & support to address customer complaints,
product returns & product defects.
 Types of Consumers
 Impulsive buyers: who purchase products quickly.
 Patient buyers: who purchase products after making some
comparisons.
 Analytical buyers: who do substantial research before
making the decision to purchase products or services.

Marketing researchers over the year have categorized

shopping experiences into two dimensions:
 Utilitarian: carrying out a shopping activity means a
product is purchased in deliberate & efficient manner.
 Hedonic: carrying out a shopping activity because “it is
fun & I love it” means shopping entertainment (bargain
perceptions)
 Types of Purchases
 Specific planned purchases: where the need was
recognized on entering the store & shopper bought the
exact item to planned.
 Generally planned purchases: where need was
recognized, but shoppers decide in stores on the actual
manufacturer of the item to satisfy the need.
 Remainder purchases: the shopper is influenced by in-
store advertisements & can substitute products easily.
 Entirely unplanned purchases: where the need was not
recognized upon entering the store.
 Prepurchase Preparation
 Includes search & discovery for a set of products
in the large information space capable of meeting
customer requirements & product selection from
a smaller set of products.
 Consumer goes through in the prepurchase phase:
 Deliberation
 Comparison

 Negotiation.
 Prepurchase Deliberation
 It is defined as the elapsed time between a consumer
first thinking about buying & actual purchase itself.
 E.g. the purchase of a new car involves an
appreciable time lag between the initiation of the
information search process & the decision.
 The answer to several questions about the purchase
deliberation process:
 How much time buyers spend in shopping?
 Factors for differences in consumer decision time?
 Technology used to reduce decision time?
 What shopping environment keeps customer happy?
 Prepurchase Comparison &
Negotiation Process
 Consumer search: obtaining data related to an
individual purchase decision problem.
 Organization search: process through an
organization adapt to such a change in its
external environment as new suppliers, new
products & new services.
 Purchase Consummation
 After identifying the product to be purchased, the buyer &
seller must interact in some way to carry out the merchantile
interaction. A merchantile interaction is defined as exchange
of information between buyer & seller followed by the
necessary payment.
 A simple merchantile protocol requires following transections:
 Buyer contact to vendor for purchasing
 Vendor tell price
 If satisfied, buyer authorizes encrypted payment to vendor
 Vendor verify encrypted billing payment of buyer
 Billing service decrypt payment details & checks buyer a/c details
 Billing service gives green light to vendor to deliver product
 On receiving goods, buyer signs & delivers the receipt.
 Postpurchse Interaction
 Customer value, price & cost
 Refunds of payments
 Affect customer satisfaction & company
profile ability for years
Basic Problems Encountered Immediately

 “Customer-Acquisition Costs” are huge.

 Customers’ switching costs are tiny.
(Lock-in to online book-buying is high.
Lock-in to Amazon is low. Recall Netscape
and IE.)
 Competition is fierce in almost all segments.
Few e-tailers are profitable.
 Investors have run out of money and
patience.
Internet Customer Acquisition Costs
Customer acquisition cost = total spent on
advertising and marketing divided by the total
number of new customers obtained
 E-tailing is Difficult in
Low-Margin Businesses
 Toys (e-Toys.com)
 Warehouse, marketing, website, and other fixed
overhead is high.
 A pure-play e-tailer needs to capture at least 5% of the
toy market to reach profitability.
 Groceries (Webvan.com, Peapod.com)
 Typical online order contributes $9 to gross revenue
(fulfillment costs are very high).
 Steady customer orders ~30 times/year
Current Theories (after first shake-out)

 High order frequency and large order size are more

important than large customer base.
 Concentrate on making transactions profitable, not on
VC-supported market-share wars.
 Combine e-tailing with B&M stores.
 “Multi-Channel” Retail (B2C w/
B&M)
 Exploit multiple marketing and distribution
channels simultaneously
 B&M (“bricks and mortar”) stores: Customers browse
on the web before going to the store.
 Catalog sales, telephone, tv advertising,…
 Online Retailing Successful Stories
Web based Travel Agencies
 The web has made an impressive foray into
travel business- hotel booking, car rentals & air
tickets.
 Business problem: reduce booking problem,
provide GUI interface to hotel, airline tickets.
 Solution: use web for booking online.
 Requirements: www
 Benefits: up-to-date information
 Management Challenges in Online
Retailing
 Retail advertising & marketing issues:
 Advertising
 Product display
 Brand & category
 Pricing & incentives
 Retail operations issues:
 Inventory management
 Customer service quality
 Retail management issues:
 Location & decision making (site selection)
 Retail policies
 Management Challenges in Online
Retailing : Retailing Strategy
 Qualifying a customer
 Learning the customer needs
 Understanding the customer purchasing process
 Making the presentation based on customer
interaction
 Handling objections, negotiations with the customer
 Closing the sale
 Building an ongoing relationship through the service
 Retailers lifestyle, voice, image
 Management Challenges in Online
Retailing
 Manage channel conflict
 Learn to price online products/ services
 Deliver a satisfying shopping experience
 Design the layout of online store
 Mange brands
 Create the right incentives