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B2C E-commerce in the U.S. will grow to $87 billion by 2003 from $17 billion in 1999 PowerPoint Presentation
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What We Have Learned About B2C Electronic Commerce Dr. Bert Rosenbloom Professor of Marketing and Rauth Chair in Electronic Commerce Management Drexel University, USA B2C E-commerce in the U.S. will grow to $87 billion by 2003 from $17 billion in 1999

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What We Have Learned About B2C Electronic CommerceDr. Bert RosenbloomProfessor of Marketing and Rauth Chair in Electronic Commerce ManagementDrexel University, USA

b2c e commerce in the u s will grow to 87 billion by 2003 from 17 billion in 1999

B2C E-commerce in the U.S. will grow to $87 billion by 2003 from $17 billion in 1999

B2C E-commerce worldwide will approach $200 billion by 2003

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Even though substantial growth will occur, 95% of “pure play” dot-coms are expected to go out of business by 2003

Of those remaining only a small minority will be profitable

clicks and mortar

Much of the online B2C sales volume will be generated by conventional (bricks and mortar) retailers using the Internet asjust another marketing channelto reach their customers

“Clicks and Mortar”

online sales 1999 pure e tailers vs multichannel retailers
Online Sales (1999)Pure E-tailers vs. Multichannel Retailers

Source: (Business Week E-B:2 10/23/000:EB 36)

what have we learned so far about what works and what does not work in b2c e commerce
What have we learned so far about what works and what does not work in B2C E-Commerce?
  • Let’s take a look...
real businesses still need to be built the dot com formula
Real Businesses Still Need to be BuiltThe Dot-Com Formula
  • First Mover Advantage for quick name recognition
  • Get maximum number of eyeballs to visit Website
  • Convert eyeballs to paying customers
  • Then figure out how to make a business out of it
  • It Doesn`t Work
  • Internet is good for communication with existing customers but terrible for attracting new customers
focus on customers not investors
Focus on Customers Not Investors
  • Dot-coms more interested in attracting investors than customers
  • Companies become incidental to the stock price
  • Greater fool theory and momentum investing -- “dumb money”
  • Huge market caps created -- but little if any customer value developed
differentiation crucial for survival
Differentiation Crucial for Survival
  • Online sales of many consumer product categories will grow in excess of 50% annually over the next 2-3 years. (Forrester Research)
  • Yet
  • 95% of the world’s dot-com companies will fail during the next two years. (Gartner Group)
  • Most basic cause of death?
  • Lack of differentiation - Failure to stand out from the crowd (Business 2.0)
customer acquisition costs too high
Customer Acquisition Costs Too High
  • In the U.S. in 1999, e-tailers spent 110% of revenues on marketing
  • Average cost of acquiring each customer was $84.00 but $200 per customer was not unusual
  • Expensive TV ads not cost effective
  • Banner ads are not effective--- little click through
  • Name recognition and synergy needed from “land-based” retailers (clicks & mortar)
  • McKinsey & Co. Study -- 4 times higher customer acquisition cost for online vs. offline
better website design needed
Better Website Design Needed
  • Too often function is sacrificed for flash
  • Designed by “techies” rather than marketers
  • Surveys find that 50% of customers go directly to search button to find products
  • Website design must begin with understanding of consumer behavior
  • Just 22% of customers who put items in their electronic shopping carts actually purchase; 78% abandon their carts
merchandising expertise vital
Merchandising Expertise Vital
  • Selecting the right products to sell is still an art and a science (cannot escape retailing)
  • Items with higher gross margins needed for e-commerce
  • Wider selection creates inventory problems
  • Amazon.com wrote off $39 million for unsalable merchandise in 1999
reliable and efficient fulfillment systems key
Reliable and Efficient Fulfillment Systems Key
  • Online shoppers expect dependable and quick shipment
  • Small order fulfillment is expensive especially when labor intensity is high
  • More automated warehouses needed to increase efficiency and lower costs
back end at least as important as front end
Back End at Least as Important as Front End
  • E-commerce and E-tailing cannot escape fulfillment and logistics
  • Arthur Andersen study found over 40% of deliveries to customers were late

Back End Problem Area (1999 Holiday) % of Consumers Mentioning

Untimely Delivery 40%

Product out of stock 24%

High shipping & handling costs 21%

Long shipping time 18%

Slow email response 10%

____________________

Source: Jupiter Communications; eMarketer

customer service is crucial
Customer Service is Crucial
  • Pure Internet shopping is a myth
  • Must have actual people (customer service representatives) whom customers can reach easily by telephone and/or e-mail
  • Lands’ End has 2500 customer service representatives to answer questions by phone or e-mail
  • Perceived risk of shopping online results in almost 80% of customers not completing purchases online
  • If just 10% of online abandoned shopping carts could be salvaged through better customer service, over $60 billion in lost sales could be recovered (Datamonitor)
returns problem needs to be addressed
Returns Problem Needs to be Addressed

Study conducted by Electron Economy of 60 leading Websites found the following:

80% required customers to pay return shipping

49% provided return postal bags and preaddressed return labels with order

28% required Return Merchandise Authorization (RMA)

“Customers did not need permission to purchase an item, so why should they need permission to return it.”

(BUSINESS 2.0; 10/10/00:181)

  • Returns involve “reverse logistics”
internet has not caused intense price competition
Internet Has Not Caused Intense Price Competition
  • Online Comparison Shopping Services (shopping bots) have not been a major force:
        • Dealtime.com
        • BottomDollar.com
        • PriceScan.com
        • MySimon.com
  • Consumers do not use shopping bots regularly
  • Real-time searches yield slow and unreliable information
  • Database searches faster but often not timely
  • Consumers seek other factors: reputation, reliability,
  • speed, and service
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Banner Ads Not EffectiveOnline advertising growing dramatically - from $3.5 billion in 1999 to $16.5 billion by 2005But
  • Click-through rates now only 0.3% - 0.5%
  • Far below direct mail response rate of 1% - 3%
  • Online advertising may need to focus more on brand awareness
privacy is becoming a major concern
Privacy is Becoming a Major Concern
  • The dark side of e-commerce
  • The same technology used to cut costs and enhance communication can leave a trail of personal information
  • “Cookies” -- may provide information consumers do not want revealed
  • Regulations may emerge which while protecting privacy may limit flexibility of e-commerce
use clicks and bricks to create synergy
Use “Clicks and Bricks” toCreate Synergy
  • “Pure plays” not economically viable
  • Promotional costs too high for pure plays vs. multi-channel firms
  • (pure play)Etoys 37c in promotion per dollar of sales
  • (bks. & mtr.)Williams-Sonoma 11c in promotion per dollar of sales
  • Order processing costs too high for pure plays -- too many “onsies and eachies”
products need to be internetable
Products Need to be “Internetable”
  • Physical products cannot be digitized
  • Physical products have size and weight and take up space
  • Physical products need to be selected, packed and shipped
  • Physical products are transported at slow speeds
  • Internetable products are those that have a high value to weight or size ratio
clicks and mortar firms have the advantage
Clicks-and-Mortar Firms Have the Advantage
  • Channel Conflict evolving into “Channel Confluence”
  • Real power of Internet may be as a supplemental channel rather than exclusive channel
  • Synergy and higher revenue results from offering customers multiple channels
bricks and mortar retailers here to stay online retail sales as percentage of total retail sales
Bricks and Mortar Retailers Here To StayOnline Retail Sales as Percentage of Total Retail Sales

Source: Jupiter Research