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Chapter 2 Retailing in Electronic Commerce 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

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overview of electronic marketing structure
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
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
forecast of the b2c electronic market size source oecd 1997
Forecast of the B2C Electronic Market Size (Source: OECD, 1997)

Forecasting Institutions 1997($ Mil.) 2000 ($ Mil.)

IDC 1,000 117,000

VSAComm 48 3,500

VeriFone 350 65,000

Actif Media 436 46,000

Killen & Assoc. 775,000

Yankee 850 144,000

Jupiter 45 580

E-land 450 10,000

EU 228,000

USA 200

EITO 363 200,000

AEA/AU 200 45,000

Hambrecht & Quest 1,170 23,200

Forrester 518 6,579

Mean value 469 134,906

forecast of the b2c electronic markets cont
Forecast of the B2C Electronic Markets(cont.)
  • Kinds of items sold

(Unit: Millions of U.S. Dollars)

Items 1997 2002

Travel 911 11,699

PC hardware 986 6,434

Grocery 63 3,529

Software 85 2,379

Books 152 3,661

Music 37 1,591

Videos 15 575

Toys 2 555

Comsumer electronic 15 792

Health and Beauty 2 1,183

Initial Forecast of B2C Electronic Market Segments

forecast of the b2c electronic markets cont6
Forecast of the B2C Electronic Markets(cont.)
  • What sells on the Internet?
  • 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
Business Models of Electronic Marketing

Generalized Mall


Specialized Mall/Store

Direct Marketing Manufacturers


Indirect Marketing Manufacturers

Full Cybermarketing


Partial Cybermarketing

Active Strategic Posture


Reactive Strategic Posture

Electronic Distributor


Electronic Broker

Global Marketing


Regional Marketing

Electronic Mall


Electronic Store



Customer Services

business models of electronic marketing cont
Business Models of Electronic Marketing(cont.)
  • Direct marketing Vs.
      • Advertisement and distribution of products to customers via Internet without intermediary (e.g. electronic stores)
  • Indirect marketing
      • Products are distributed through third-party intermediaries (e.g. e-malls)
  • Full Cybermarketing Vs.
      • Product sales only through the Internet (e.g. Amazon)
  • Partial Cybermarketing
      • Product sales also through traditional stores (e.g. Barnes & Noble)
business models of electronic marketing cont9
Business Models of Electronic Marketing(cont.)
  • Electronic distributor Vs.
      • An electronic distributor is responsible for order fulfillment and guarantee. (e.g. Dell, Wal-Mart)
  • Electronic broker
      • An electronic broker is just introducing suppliers, who deal with the ordered items themselves
  • Electronic store (e-store) Vs.
      • Dealing items are handled by a single management
  • Electronic shopping mall (e-mall)
      • Dealing items are handled by more than a single electronic store
business models of electronic marketing cont10
Business Models of Electronic Marketing(cont.)
  • Proactive strategic posture toward cybermarketing Vs.
    • a company’s main distribution channel is the Internet; internal management (e.g. inventory and operations management) is focused to affect the benefit of cybermarketing (e.g. Dell)
  • Reactive strategic posture toward cybermarketing
    • online distribution channel is just additional to traditional physical distribution channel as the company’s main distribution channel
  • Global Vs. Regional marketing
    • Limiting factors: perishable goods, delivery costs, legal boundaries, language
  • Sales Vs. customer services
    • Web site use as customer service to reduce call center personnel (e.g. software/ hardware companies)
direct marketing
Direct Marketing
  • Active and full direct Marketing

Dell Computer Corporation Case

  • Founding spirit of dell: telemarketing
    • Emergence of the Internet: use as direct marketing channel
  • Astonishingly high growth and returns
    • 1998:largest manufacturer/ marketer of business PCs, growing the fastest among all major computer system makers
    • $14 Mil. per day through the Internet (2/99)
    • Internet sale is complemented by phone,fax, email call center service
direct marketing cont
Direct Marketing (cont.)
  • Dell’s Critical Success Factors
    • Advanced web applications (Internet use from customer all the way back through supply chain)
    • Price competitiveness owing to mass-customization and efficient procurement/ delivery (no change of business strategy necessary)
    • Database marketing and customer intimacy (learning about customers by watching them use the Web site)
    • Global reach and value added services at a single contact point (over 10000 service providers, suppliers and customers are related to single contact point)
direct marketing cont13
Direct Marketing (cont.)
  • Dell’s Critical Success Factors (cont.)
    • High reliability and reputation (unprecedented high no. of awards for performance, reliability, service)
    • Delivery support (simple configuations in 2-3 days, average in 5 days, complex in 7-10 days, order status information)
direct marketing cont14
Direct Marketing (cont.)
  • Reactive and Partial Direct Marketing
  • Sell their products mainly through traditional channels like department stores, discount stores, and franchises

Ford Case

    • Internet as additional distribution channel
    • dealers as partners need to be included (orders 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
direct marketing cont15
Direct Marketing (cont.)
  • Ford’s reactive direct marketing model (procedure)
  • Reactive and Partial Direct Marketing

Pick the interior upholstery that suits your taste

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 vehicle

Pick your favorite exterior paint color

The dealer will contact you

with a price and availability of the vehicle you configured

Select the brand of car or truck

that interests you

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 dealer

Apply for financing

Then the Online Shopping Service System will provide

you with a “Vehicle Summary”

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

Test drive and accept delivery

Enter your ZIP code

Search the inventory

Secure your vehicle

Enter your personal information

Print your order

Explore leasing or financing options

Confirm your order

Confirm you delivery

Select a dealership for test-drive and delivery

Choose a Ford Extended Service Plan

  • Dealers are not targeted for elimination but partners
online customer service
Online Customer Service
  • Provided in conjunction with online sales
  • Provided to products which are sold offline
  • Examples: service and support homepage of Hewlett Packard (HP)or Microsoft
active electronic intermediaries
Active Electronic Intermediaries
  • Pure electronic mall
    • Company’s retailing business exists only on the Internet
    • Electronic distributors
      • take full responsibility of fulfilling orders and collecting payments (e.g. CDnow, Virtual Vineyard)
    • Electronic brokers
      • assist the search process of finding the appropriate products and their vendors (e.g. Internet Mall)
  • Partial electronic mall
    • Electronic mall as one of existing distribution channels
active electronic intermediaries cont
Active Electronic Intermediaries (cont.)
  • Generalized Electronic Intermediaries
  • Examples : Choice Mall,iMall, recently Yahoo, Excite
  • 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
    • customers need a reliable screening capability of quality and reliability of brands and companies
    • Competing electronic channels to find items needed (e-brokers should provide some differentiated attraction)
active electronic intermediaries cont19
Active Electronic Intermediaries (cont.)
  • Specialized Electronic Distributors
  • Cyber Bookstores
    • Amazon, Barnes & Noble
  • Cyber CD Stores
    • Columbia House, Music Boulevard, CD Universe, and CDNow
  • Digitized Products and Services Stores
    • Software, games, CDs, and videos
  • Cyber Flower Stores
    • 1-800-FLOWERS
reactive electronic department store
Reactive Electronic Department Store
  • Electronic Department Stores Worldwide
  • Marks & Spencer in the U.K., La Redoute in France, Wal-Mart in the U.S.A.
  • Common strategy is finding significant benefits from merchandising online (Reduced prices? Reduced shopping time? Convenience Shopping from any place?)
  • Offering electronic service on the Internet is a supplementary channel of advertisement
  • By 2000, over 40% of all U.S. major retailing will sell online
procedure for internet shopping the consumer s perspective
Procedure for Internet Shopping :The Consumer’s Perspective
  • Determination of needs (a PC and printer?)
  • Search for the available items that can meet the requirements (e-stores, e-brokers)
  • Compare the candidate items with multiple perspectives (product specification, price, delivery date, other terms and conditions)
  • Place an order
  • Pay for the goods (credit card with SSL protocol, in Europe also invoice or debit)
  • Receive the delivered items (by truck or digital)
  • After-Sales-Service or return of goods
aiding comparison shopping
Aiding Comparison Shopping
  • Searching product specific information in search engines (e.g. Altavista, Lycos etc.)
  • Searching opinions about products (e.g. ciao, epinions)
  • Search in a web-based database (e.g. MySimon, Comparisonshopping)
  • Comparable item retrieval and tabular comparison (e.g. CompareNet)
  • Comparisons over multiple malls
the impact of ec on traditional retailing system
The Impact of EC on Traditional Retailing System
  • Disintermediation and Re-intermediation
  • Disintermediation — removal of organizations/ business process layers as intermediary steps in a given value chain (wholesalers, distributors, and retailer) to reduce the cost
  • Re-intermediation —shifting/ transfer rather than complete elimination of intermediary functions,
    • intermediation such as electronic shopping malls, directory and search engine service, and comparison aids using agents creates the role of re-intermediation
the impact of ec on traditional retailing system cont disintermediation and reintermediation by ec
The Impact of EC on Traditional Retailing System(cont.) (Disintermediation and Reintermediation by EC)





Electronic Intermediaries on the Internet







Traditional Distr. System

Direct Marketing with EC

EC with Electronic Intermediaries

the impact of ec on traditional retailing system cont
The Impact of EC on Traditional Retailing System (cont.)
  • Impact on Manufacturer’s Distribution Strategy
  • Manufacturer’s monopolistic Internet-based distribution (e.g. until 1999 Levi’s alone did sell Levi’s products on the Internet)
  • Coexistence with the dealers (e.g. car manufacturer need to keep trad. dealers in car distribution)
  • Regionally mixed strategy (e.g. Nike sells on the Internet, but only in the U.S.A., physical retailing stores abroad)
  • Mass Customization for Make-to-Order (Manufacturers have to be adaptive to customized orders of ultimate consumers)