Retailing on the Web by hcj


									Online Retail

   Chapter 9
Learning Objectives
 Understand the environment in which the online retail sector
  operates today
 Describe the evolution of retailing and how it led to Internet
 Identify the challenges faced by the different types of online
The Retail Sector
 By any measure, the size of the U.S. retail market is huge
 In a $15 trillion economy, personal consumption of retail
  goods and services accounts for over $10.7 trillion (about
  70%) of total GDP
 This is divided into services (65%), durable goods (10%),
  and nondurable goods (25%)
 Durable goods are those that are consumed over a longer
  period of time such as automobiles, appliances, building
  supplies and furniture
Composition of the U.S. Retail
Industry (Figure 9.1)
The Evolution of Retailing
 Town Square Markets
    Previous centuries
 Catalog Retailing
    late 1800s to early 1900s
 Chain Stores
    1920s and 1930s
 Grocery Supermarkets
    1940s and 1950s
 Mass Merchandise Discount Chains
    1970s and 1980s
 Internet Retailing
    1990s and 2000s
Forces Affecting the Evolution of
 The growth of mail order catalogs, supermarkets, and mass
  merchandise chains was driven in each case by three forces:
   declining costs of accessing a larger market that had prior retail
   providing customers with lower prices to achieve higher sales
    volumes in the new retailing format, and
   providing customers with convenience in shopping by offering a
    wide range of products at a single location
Internet Retailing
 The same basic forces that drove the growth in previous
  revolutions in retailing are also driving the growth of this
  new Internet retailing format
   declining importance of distance and larger potential
   increasing focus on providing attractive prices, and
   offering added convenience by offering more goods in one
    location (your home)
E-Commerce Retail: The Vision
 The early vision for e-commerce included the following
   Consumers would use the Web to find the lowest-cost products
   Entry costs to the online retail market would be much less than
    those needed to establish physical storefronts
   Traditional offline physical store merchants would be forced out of
   Widespread disintermediation
 Few of these assumptions and visions were correct
 The structure of the retail marketplace in the U.S., with
  some notable exceptions, has not be revolutionized
 However, the Internet has created opportunities for multi-
  channel firms
The Online Retail Sector Today
 Continuing to grow at an fast rate
 More consumers than ever are buying online
 Consumers like choice – successful firms will be able to provide
    an “integrated shopping customer experience”
   Online intermediaries continue to play a powerful role in retail
   Customers are attracted to stable, well-known, trusted retail
    brands and retailers
   Explosive growth in social e-commerce
   Additional advantages and challenges for online retailers are
    shown in Table 9.2
Online Retail and B2C E-Commerce is
Alive and Well (Figure 9.2)
What’s New in Online Retail,
2011-2012 (Table 9.1)
 Mobile commerce became a reality ($5.3 billion in retail sales)
 Social network growth encourages “social shopping”
 Growth in local commerce (Groupon, etc.)
 Buying online has become “normal”
 Selection of goods continues to grow
 Specialty retail sites show rapid growth
 Increased emphasis on improved “shopping experience”
 Increased use of interactive marketing technologies and Web 2.0
 Becoming more efficient at integrating channels
 More than half of online shopping and nearly a third of online
  purchases occur at work
E-Commerce in Action: E-Tailing
Business Models
 There are four main types of online retail business models:
   Virtual merchants
   Multi-channel merchandisers
   Catalog merchants
   Manufacturer-direct
Virtual Merchants
 Single-channel Web firms that generate almost all their
    revenue from online sales (Amazon, etc.)
   Face extraordinary strategic challenges
   Must build a business and brand name from scratch, quickly,
    in an entirely new channel with many competitors
   Do not bear the costs associated with building and
    maintaining physical stores
   Do have large costs for building and maintaining their
    website, order fulfillment infrastructure, etc.
Multi-Channel Merchants
 Also called bricks-and-clicks (Wal-Mart, JC Penney, Staples, etc.)
 Have a network of physical stores as their primary retail channel,
  but also have online offerings
 Typically have brand name, logistics systems, and size advantages;
  also gives consumers more choices
 Face the challenge of leveraging their strengths and assets to the
  Web, building a credible website, hiring new skilled staff, and
  building online order entry and fulfillment systems (plus potential
  channel conflict)
 Some example multi-channel integration methods are listed in
  Table 9.3
Retail E-Commerce: Multi-Channel
Integration Methods (Table 9.3)
 Online order, in-store pickup
 Online order, store directory and inventory
 In-store kiosk Web order, home delivery
 In-store retail clerk Web order, home delivery
 Web order, in-store returns and adjustments
 Online Web catalog
 Manufacturers use website promotions to drive customers to
  their distributors’ retail stores
 Gift card, loyalty program points can be used in any channel
Catalog Merchants
 Established companies that have a national offline catalog
  operation that is their largest retail channel, but who have
  developed online offerings (Lands’ End, L.L. Bean, Eddie
  Bauer, etc.)
 Face very high costs for printing and mailing millions of
 Have the highest margins in the retail sector because they
  have achieved very efficient operations
 Why was it easier for catalog merchants to begin selling their
  products online when compared with other forms of retail?
 Either single or multi-channel manufacturers that sell
  directly online to consumers without the intervention of
  retailers (Dell)
 Predicted to play a very large role in e-commerce, but this
  has generally not happened
 Must develop an order fulfillment system, acquire customers,
  and coordinate their supply chains with market demand
 It has been difficult for existing manufacturers to switch from
  a supply-push model to a demand-pull model for managing
  their production operations
Challenges to Online Retail (Table 9.2)
 Consumer concerns about security of transactions
 Consumer concerns about privacy of personal information
 Delays in delivery of goods when compared to store shopping
 Inconvenience associated with returns
 Overcoming lack of consumer trust in online brand names
 Added expenses for developing online multimedia
 Online marketing costs for search, e-mail, and displays
 Added complexity to product offerings and customer service
 Greater customer information leads to higher price
  competition and lower profits
 What is next?
 How could a new retail format improve on one or more of
  the three forces related to the evolution of retailing?
   Efficiently reach larger market
   Provide lower prices
   Improve convenience

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