PART THREE
E-commerce in Action
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Chapter 6:
Online retailing and services
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Learning Objectives
- Understand
the environment in which the online retail sector
operates today.
- Explain how to analyze the economic viability of an online firm.
- Identify the challenges faced by the different types of online
retailers.
- Describe the major features of the online service sector.
- Discuss the trends taking place in the online financial services
industry.
- Describe the major trends in the online travel services industry
today.
- Identify current trends in the online career services industry.
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RETAIL INDUSTRY
The retail industry is composed of many different types
of firms. The retail industry divides into nine segments:
- Clothing
- Eating and Drinking
- Durable goods
- MOTO
- General merchandise
- Online retail firms
- Groceries
- Specialty stores
- Gasoline and fuel
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E-commerce Retail: The Vision
The retail industry would be revolutionized,
based on some of beliefs:
1- Greatly reduced search costs on the Internet
would encourage consumers to abandon
traditional marketplaces in order to find the lowest
prices for goods. First movers who provided lowcost goods and high-quality service would
succeed.
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E-commerce Retail: The Vision
2- Market entry costs would be much lower than
those for physical storefront merchants, and
online merchants would more efficient at
marketing and order fulfillment than their offline
competitors because they had command of the
technology.
( Technology prices were falling sharply )
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E-commerce Retail: The Vision
3- Online Companies would replace traditional
stores as physical store merchants were forced
out of business. Older traditional that too slow to
enter the online market would locked out of the
marketplace.
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E-commerce Retail: The Vision
4- In certain industries, the “middleman” would be
eliminated (disintermediation) as manufacturers
or their distributors entered the market and build
a direct relationship with the consumer. This cost
savings would ensure the emergence of the Web
as the dominant marketing channel.
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E-commerce Retail: The Vision
5- In other industries, online retailers would gain
the advantage over traditional merchants by
outsourcing functions such as warehousing and
order fulfillment, resulting in a kind of hypermediation, in which the online retailer gained the
upper hand by eliminating inventory purchasing
and storage costs.
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ADVANTAGES AND CHALLENGE TO
ONLINE RETAIL
Advantages
- Lower supply chain costs by aggregating demand at a
single site and increasing purchasing power.
- Lower cost of distribution using Web sites rather than
physical stores.
- Ability to reach and serve a much larger geographically
distributed group of customers.
- Ability to react quickly to customer tastes and demand.
- Ability to change prices nearly instantly.
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ADVANTAGES AND CHALLENGE TO
ONLINE RETAIL
Advantages
- Ability to rapidly change visual presentation of goods.
- Avoidance of direct marketing costs of catalogs and
physical mail.
- Increased opportunities for personalization, customization.
- Ability to greatly improve information and knowledge
delivered to customer.
- Ability to lower consumer’s overall market transaction costs.
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ADVANTAGES AND CHALLENGE TO
ONLINE RETAIL
Challenge
- Consumer concerns about the security of transactions.
- Consumer concerns about the privacy of personal
information given to Web sites.
- Delays in delivery of goods when compared to store
shopping.
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ADVANTAGES AND CHALLENGE TO
ONLINE RETAIL
Challenge
- Consumer concerns about the security of transactions.
- Consumer concerns about the privacy of personal
information given to Web sites.
- Delays in delivery of goods when compared to store
shopping.
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ANALYZING THE VIABILITY OF
ONLINE FIRMS
To understanding the near-to-medium
term ( 1-3 years ) economic viability of
these firms and their business models.
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What is economic viability ?
Refers to the ability of firms to survive as
profitable business firms during a specified
period.
To answer the question of economic viability, we take
two business analysis approaches: Strategic analysis
and Financial analysis.
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Strategic Analysis
Strategic approaches to economic viability focus on
both the industry in which a firm operates and the
firm itself.
The key industry strategic factors are:
- Barriers to entry
- Power of suppliers
- Power of customers
- Existence of substitute products
- Industry value chain
- Nature of intra-industry competition
- Technology
- Social and legal challenges
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Financial Analysis
Strategic analysis helps us comprehend the competitive
situation of the firm. Financial analysis helps us understand
how in fact the firm is performing.
There are two parts to a financial analysis: The statement of
operations and the balance sheet.
The statement of operations tells us how much money (or
loss) the firm is achieving base on current sales and costs.
The balance sheet tells us how many assets and the firm has
to support its current and future operations.
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Financial Analysis
Here are some of the key factors to look for in a firm’s
statement of Operations:
- Revenues
- Cost of sales
- Gross margin
- Operating expenses
- Operation margin
- Net margin
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