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© Prentice Hall, 2000 Learning Objectives ❚ Define the factors that determine the business models of electronic marketing ❚ Identify the critical success factors of direct marketing ❚ D

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

❚ 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

© Prentice Hall, 2000

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

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

© Prentice Hall, 2000

Forecast of the B2C Electronic Markets

Initial Forecast of B2C Electronic Market Size

❚ Kinds of items sold

Forecast of the B2C Electronic Markets (cont.)

(Unit: Millions of U.S Dollars)

[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

Business Models of Electronic Marketing

Direct Marketing Manufacturers

Customer Services

Generalized Mall

Vs.

Specialized Mall/Store

© Prentice Hall, 2000

❚ 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.)

© Prentice Hall, 2000 10

❚ 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

© Prentice Hall, 2000

❚ Dell’s Critical Success Factors

❙ 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

❚ 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 dealer’s inventory information should be shared by automakers through a common network

© Prentice Hall, 2000

❙ Ford’s reactive direct marketing model (procedure)

❚ 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 vehiclePick the interior upholstery that suits your tastePick your favorite exterior paint color

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 dealerThe dealer will contact youwith a price and availability of the vehicle you configuredApply for financing

❙ Ford supports a pre-owned showroom in the following way :

Enter your ZIP code Search the inventory Enter your personal information Secure your vehicle Select a dealership for test-drive and delivery Choose a Ford Extended Service Plan Explore leasing or financing options Test drive and accept delivery Confirm you delivery Confirm your order Print your order

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

© Prentice Hall, 2000

Active Electronic Intermediaries

❙ Company’s retailing business exists only on the

products and their vendors

❙ Electronic mall as one of existing distribution channels

❚ Generalized Electronic Intermediaries

Active Electronic Intermediaries (cont.)

❙ 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

© Prentice Hall, 2000

❚ Specialized Electronic Distributors

Active Electronic Intermediaries (cont.)

❙ Digitized Products and Services Stores

❘ Software, games, CDs, and videos

❙ Cyber Flower Stores

❘ 1-800-FLOWERS

Reactive Electronic Department Store

❚ The J.C Penney Case

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%

based 1%

Internet-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

© Prentice Hall, 2000

❚ 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

Regional Shopping Service

❙ 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

© Prentice Hall, 2000

Procedures for Internet Shopping :

The Consumer’s Perspective

meet the needs

meet the requirements

multiple perspectives: specification, price,

delivery date, and other terms and

conditions

❙ Place an order

possibly while using

support, or to return if disappointed

Procedures for Internet Shopping :

The Consumer’s Perspective (cont.)

© Prentice Hall, 2000

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

The Impact of EC on Traditional Retailing System

❚ Disintermediation and Re-intermediation

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

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

© Prentice Hall, 2000

❚ Impact on Manufacturer’s Distribution Strategy

The Impact of EC on Traditional

Retailing System (cont.)

❙ Manufacturer’s monopolistic Internet-based

distribution: Levi’s does not allow any one else to sell

the Levi’s product on the Internet (policy changed in

❙ 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.

and distribution systems

Regard the electronic store as an additional channel of distribution

OR

of items

OR

Managerial Issues (cont.)

❚ For existing retailer in the physical space:

highest possible customer satisfaction at a

minimum operating cost?