CS5038 The Electronic Society
2. A Quick Overview of Electronic Retailing
• B2C Retailing: types and ways to succeed
• Consumer Categories
• Consumer Decision Criteria
• Online Purchasing Aids
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E-Tailing Business Models
Click and Mortar Strategy
E-tailing Problems
The middleman problem: e.g. travel industry
1
Business-to-Consumer (B2C) Retailing
• Ability to create direct relationships with consumer without
intermediaries like distributors, wholesalers, or dealers
2
Business-to-Consumer (B2C) Retailing
• Ability to create direct relationships with consumer without
intermediaries like distributors, wholesalers, or dealers
• “Brick-and-mortar” = Traditional offline retailer
• “Click-and-mortar” = offline + online presence
3
Business-to-Consumer (B2C) Retailing
• Ability to create direct relationships with consumer without
intermediaries like distributors, wholesalers, or dealers
• “Brick-and-mortar” = Traditional offline retailer
• “Click-and-mortar” = offline + online presence
• B2C Market success is derived from:
 Offering quality merchandise at good prices
 Excellent customer service
 Convenience
4
Business-to-Consumer (B2C) Retailing
• Ability to create direct relationships with consumer without
intermediaries like distributors, wholesalers, or dealers
• “Brick-and-mortar” = Traditional offline retailer
• “Click-and-mortar” = offline + online presence
• B2C Market success is derived from:
 Offering quality merchandise at good prices
 Excellent customer service
 Convenience
• Goods that sell well online
 Brand recognition and guarantees
 Digitized products – music, video, software
 Frequently purchased, inexpensive items
 Well-known items with standard specifications

no need to inspect
5
Click and Mortar Strategy
Channel: route to customer (through delares/vendors/resellers/dealers and distributors, or directly (own shop or
web-site))
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Click and Mortar Strategy
Channel: route to customer (through vendors/resellers/dealers and distributors, or directly (own shop or
web-site))
Channel Conflict
 Any situation where channel members are antagonistic due
to real or perceived differences in incentives, rewards,
policies or support
 Levi’s stopped online direct sales, because
distributors complained
 Selling off old stock directly to make room for fresh
models may undercut dealers.
7
Click and Mortar Strategy
Channel: route to customer (through delares/vendors/resellers/dealers and distributors, or directly (own shop or
web-site))
Channel Conflict
 Any situation where channel members are antagonistic due
to real or perceived differences in incentives, rewards,
policies or support
 Levi’s stopped online direct sales, because
distributors complained
 Selling off old stock directly to make room for fresh
models may undercut dealers.
 Have to coordinate parallel channels of distribution and
marketing strategies
 e.g., car dealer network + online direct sales
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Click and Mortar Strategy (B)
Successful Strategies
 Empower the customer – 24/7 service and information
 Store locators; Product information; Inventory
levels
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Click and Mortar Strategy (B)
Successful Strategies
 Empower the customer – 24/7 service and information
 Store locators; Product information; Inventory
levels
 Speak with one voice – integrate back-end systems
 Customer gets the same information through
telephone or webpage
10
Click and Mortar Strategy (B)
Successful Strategies
 Empower the customer – 24/7 service and information
 Store locators; Product information; Inventory
levels
 Speak with one voice – integrate back-end systems
 Customer gets the same information through
telephone or webpage
 Leverage the channels – best of both
 Order electronically; physical sales return
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Consumer Categories
19% Social Shoppers:
enjoy shopping
20% Habit die-hards:
stuck in their ways
14% Ethical:
will purchase
provided
it is honest and ‘pc’
14% Experimenters:
ready to try new things
47% want to
shop
electronically
16% Value shoppers:
will purchase where
they see value
Michael De
Kare-Silver
17% Convenience:
responsive to things
which save time
or make life easier
Shopping avoider
Hunter gatherers
 enjoy comparison/ search
New technologists
 because it's cool
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Diffusion of Innovation
The Bohlen, Beal, Rogers Picture
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Demand, in
units
The Long Tail
1000000+
Cut-off for
viable stock
13
J.K. Rowling
J.R. Hartley
Books, by sales
A few big hits (green). A lot of stuff that sells poorly
(yellow). But a lot of the potential sales are yellow.
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Purchasing decision-making model
6 major phases
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Purchasing decision-making model
6 major phases
 Need identification
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Purchasing decision-making model
6 major phases
 Need identification
 Develop Consideration Set
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Purchasing decision-making model
6 major phases
 Need identification
 Develop Consideration Set
 Information search and evaluation of alternatives
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Purchasing decision-making model
6 major phases
 Need identification
 Develop Consideration Set
 Information search and evaluation of alternatives
 Choice Decision
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Purchasing decision-making model
6 major phases
 Need identification
 Develop Consideration Set
 Information search and evaluation of alternatives
 Choice Decision
 Configuration/Personalization
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Purchasing decision-making model
6 major phases
 Need identification
 Develop Consideration Set
 Information search and evaluation of alternatives
 Choice Decision
 Configuration/Personalization
 Upgrade/Replacement
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Purchasing decision-making model
6 major phases
 Need identification
 Develop Consideration Set
 Information search and evaluation of alternatives
 Choice Decision
 Configuration/Personalization
 Upgrade/Replacement
Need to help the Consumer at each stage of this process
• Return to this later from market-research viewpoint
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Consumers’ Decision Criteria
1. Value proposition
 customer service, better prices, higher quality
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Consumers’ Decision Criteria
1. Value proposition
 customer service, better prices, higher quality
2. Personal service
 treat the customer as a unique individual
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Consumers’ Decision Criteria
1. Value proposition
 customer service, better prices, higher quality
2. Personal service
 treat the customer as a unique individual
3. Convenience
 self-contained site that serves all customer needs
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Consumers’ Decision Criteria
1. Value proposition
 customer service, better prices, higher quality
2. Personal service
 treat the customer as a unique individual
3. Convenience
 self-contained site that serves all customer needs
4. Other criteria
 service after the sale, online help, return policy
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Consumers’ Decision Criteria
1. Value proposition
 customer service, better prices, higher quality
2. Personal service
 treat the customer as a unique individual
3. Convenience
 self-contained site that serves all customer needs
4. Other criteria
 service after the sale, online help, return policy
Advertisers try to Influence consumer decision
 Products—portfolio of items available
 Price of the products
 Promotion of products (ads & giveaways)
 Packaging and delivery
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Online Purchasing Aids
Shopping portals
 Comprehensive portals - many different sellers & comparisons
 Shop.lycos.com
 Niche oriented - specialised line of products (dogtoys.com)
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Online Purchasing Aids
Shopping portals
 Comprehensive portals - many different sellers & comparisons
 Shop.lycos.com
 Niche oriented - specialised line of products (dogtoys.com)
Shopbots and agents
 Tools scout the Web for specific search criteria - Mysimon.com
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Online Purchasing Aids
Shopping portals
 Comprehensive portals - many different sellers & comparisons
 Shop.lycos.com
 Niche oriented - specialised line of products (dogtoys.com)
Shopbots and agents
 Tools scout the Web for specific search criteria - Mysimon.com
Business ratings sites
 Sites that rate e-tailers - Bizrate.com, Gomez.com
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Online Purchasing Aids
Shopping portals
 Comprehensive portals - many different sellers & comparisons
 Shop.lycos.com
 Niche oriented - specialised line of products (dogtoys.com)
Shopbots and agents
 Tools scout the Web for specific search criteria - Mysimon.com
Business ratings sites
 Sites that rate e-tailers - Bizrate.com, Gomez.com
Trust verification sites
 Evaluate and verify trustworthiness of e-tailers - TRUSTe
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Online Purchasing Aids
Shopping portals
 Comprehensive portals - many different sellers & comparisons
 Shop.lycos.com
 Niche oriented - specialised line of products (dogtoys.com)
Shopbots and agents
 Tools scout the Web for specific search criteria - Mysimon.com
Business ratings sites
 Sites that rate e-tailers - Bizrate.com, Gomez.com
Trust verification sites
 Evaluate and verify trustworthiness of e-tailers - TRUSTe
Escrow services
 3rd party to assure quality and proper exchange
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Online Purchasing Aids
Shopping portals
 Comprehensive portals - many different sellers & comparisons
 Shop.lycos.com
 Niche oriented - specialised line of products (dogtoys.com)
Shopbots and agents
 Tools scout the Web for specific search criteria - Mysimon.com
Business ratings sites
 Sites that rate e-tailers - Bizrate.com, Gomez.com
Trust verification sites
 Evaluate and verify trustworthiness of e-tailers - TRUSTe
Escrow services
 3rd party to assure quality and proper exchange
Communities of consumers
 Epinions.com—searchable recommendations on products
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 PriceGrabber.com—comparison shopping
E-Tailing Business Models (by revenue)
1. Subscription models
 Charge monthly or annual subscription fee for service
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E-Tailing Business Models (by revenue)
1. Subscription models
 Charge monthly or annual subscription fee for service
2. Transaction fee models
 Service fee based on the level of transaction offered
35
E-Tailing Business Models (by revenue)
1. Subscription models
 Charge monthly or annual subscription fee for service
2. Transaction fee models
 Service fee based on the level of transaction offered
3. Advertising-supported models
 Charge fee to advertisers instead of customers
36
E-Tailing Business Models (by revenue)
1. Subscription models
 Charge monthly or annual subscription fee for service
2. Transaction fee models
 Service fee based on the level of transaction offered
3. Advertising-supported models
 Charge fee to advertisers instead of `customers’
4. Sponsorship models
 Companies sponsor the business through donations
(usually supplemental income)
37
E-Tailing Business Models (by revenue)
1. Subscription models
 Charge monthly or annual subscription fee for service
2. Transaction fee models
 Service fee based on the level of transaction offered
3. Advertising-supported models
 Charge fee to advertisers instead of customers
4. Sponsorship models
 Companies sponsor the business through donations
(usually supplemental income)
Alternative Classification (by service)
 Direct marketing – sell directly to consumers
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E-Tailing Business Models (by revenue)
1. Subscription models
 Charge monthly or annual subscription fee for service
2. Transaction fee models
 Service fee based on the level of transaction offered
3. Advertising-supported models
 Charge fee to advertisers instead of customers
4. Sponsorship models
 Companies sponsor the business through donations
(usually supplemental income)
Alternative Classification (by service)
 Direct marketing – sell directly to consumers
 Pure-play e-tailers – do not maintain physical channel
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E-Tailing Business Models (by revenue)
1. Subscription models
 Charge monthly or annual subscription fee for service
2. Transaction fee models
 Service fee based on the level of transaction offered
3. Advertising-supported models
 Charge fee to advertisers instead of customers
4. Sponsorship models
 Companies sponsor the business through donations
(usually supplemental income)
Alternative Classification (by service)
 Direct marketing – sell directly to consumers
 Pure-play e-tailers – do not maintain physical channel
 Traditional retailers with Web sites – channel conflict
40
E-Tailing Business Models (by revenue)
1. Subscription models
 Charge monthly or annual subscription fee for service
2. Transaction fee models
 Service fee based on the level of transaction offered
3. Advertising-supported models
 Charge fee to advertisers instead of customers
4. Sponsorship models
 Companies sponsor the business through donations
(usually supplemental income)
Alternative Classification (by service)
 Direct marketing – sell directly to consumers
 Pure-play e-tailers – do not maintain physical channel
 Traditional retailers with Web sites – 2 channels
 On-Demand Delivery Services (ODDS)

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Firms that have a fleet to deliver direct to consumers
Dell
42
Portals, trust sites (2 slides ago)
Prentice Hall, 2002
E-tailing Failures and Lessons Learned
 Profitability – Each marginal sale must lead to marginal profits
 “if it doesn’t make cents it doesn’t make sense”
 Some pure play e-tailers lose money on every sale to grow to profitable
size and scale.
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E-tailing Failures and Lessons Learned
 Profitability – Each marginal sale must lead to marginal profits
 “if it doesn’t make cents it doesn’t make sense”
 Some pure play e-tailers lose money on every sale to grow to profitable
size and scale
 Branding – drive to establish brand can lead to excessive spending
 Strategy based on assumption that they will get quick customer
recognition
44
E-tailing Failures and Lessons Learned
 Profitability – Each marginal sale must lead to marginal profits
 “if it doesn’t make cents it doesn’t make sense”
 Some pure play e-tailers lose money on every sale to grow to profitable
size and scale
 Branding – drive to establish brand can lead to excessive spending
 Strategy based on assumption that they will get quick customer
recognition
 Performance
 Web sites need to function in a fast, user-friendly manner
45
E-tailing Failures and Lessons Learned
 Profitability – Each marginal sale must lead to marginal profits
 “if it doesn’t make cents it doesn’t make sense”
 Some pure play e-tailers lose money on every sale to grow to profitable
size and scale
 Branding – drive to establish brand can lead to excessive spending
 Strategy based on assumption that they will get quick customer
recognition
 Performance
 Web sites need to function in a fast, user-friendly manner
 Security (we’ll return to this in some depth)
46
E-tailing Failures and Lessons Learned
 Profitability – Each marginal sale must lead to marginal profits
 “if it doesn’t make cents it doesn’t make sense”
 Some pure play e-tailers lose money on every sale to grow to profitable
size and scale
 Branding – drive to establish brand can lead to excessive spending
 Strategy based on assumption that they will get quick customer
recognition
 Performance
 Web sites need to function in a fast, user-friendly manner
 Security (we’ll return to this in some depth)
 Static design or dynamic sites – rich databases of useful information
encourage customers to return
47
E-tailing Failures and Lessons Learned
 Profitability – Each marginal sale must lead to marginal profits
 “if it doesn’t make cents it doesn’t make sense”
 Some pure play e-tailers lose money on every sale to grow to profitable
size and scale
 Branding – drive to establish brand can lead to excessive spending
 Strategy based on assumption that they will get quick customer
recognition
 Performance
 Web sites need to function in a fast, user-friendly manner
 Security (we’ll return to this in some depth)
 Static design or dynamic sites – rich databases of useful information
encourage customers to return
 Incorrect Revenue Model – many were relying on advertising. Google?
48
E-tailing Failures and Lessons Learned
 Profitability – Each marginal sale must lead to marginal profits
 “if it doesn’t make cents it doesn’t make sense”
 Some pure play e-tailers lose money on every sale to grow to profitable
size and scale
 Branding – drive to establish brand can lead to excessive spending
 Strategy based on assumption that they will get quick customer
recognition
 Performance
 Web sites need to function in a fast, user-friendly manner
 Security (we’ll return to this in some depth)
 Static design or dynamic sites – rich databases of useful information
encourage customers to return
 Incorrect Revenue Model – many were relying on advertising. Google?
 Lack of funding – takes time to acquire sufficient customer base, investors
were not willing to wait / take the risk
49
E-tailing Failures and Lessons Learned
 Profitability – Each marginal sale must lead to marginal profits
 “if it doesn’t make cents it doesn’t make sense”
 Some pure play e-tailers lose money on every sale to grow to profitable
size and scale
 Branding – drive to establish brand can lead to excessive spending
 Strategy based on assumption that they will get quick customer
recognition
 Performance
 Web sites need to function in a fast, user-friendly manner
 Security (we’ll return to this in some depth)
 Static design or dynamic sites – rich databases of useful information
encourage customers to return
 Incorrect Revenue Model – many were relying on advertising. Google?
 Lack of funding – takes time to acquire sufficient customer base, investors
were not willing to wait / take the risk
 First-mover may make mistakes, second-mover can learn
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Middleman Problem
(a case study in the travel industry)
• Retailers are “middleman” between provider and
customer
• Traditionally make money by mark-up
 Buy product from supplier for £10, sell it to
customer for £15
 Difference (£5) is profit margin
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Middleman problem
Competition keeps profit margin down
 If you have a £5 mark-up, customers will go to
competitor with £4 mark-up
Suppliers may sell direct to customer
 If supplier sells product to customer for £12, he
and customer benefit
 Disintermediation
Hard to make money by mark-up in EC
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Example: Flights
Pre-Internet, airlines sold flights to consumers via travel
agents.
 Travel agent charged £100, gave airline £80 and
kept £20 as mark-up
 If customer bought directly from airline, would be
charged £100 (same as from travel agent)
How did agents add value?
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Example: Flights
In Internet age, airlines sell flights directly to customer
 Airline sells flight to both customer and travel
agent for £80.
 If travel agent sells flight to customer for £80, he
won’t make any money
 If travel agent charges £100, customer will buy
direct from airline for £80
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Example: Flights
How can travel agent make money in Internet age?
 Especially a small one, not Expedia
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Business Models
Sell flight at cost price, with extras at high markup
 E.g., insurance, delivery
Sell advertising space on website
 Sell customer data
Niche market
 Specialize in travel to, say, Poland
 Flights, hotel, airport transfer, tours
 Specialize in selling flights to universities
In these cases, how is value added?
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Business Models (B)
Branding
 Build up a good reputation, so customers trust you
to offer OK deals, good delivery
 If you’re trustworthy and “cheap enough”, it isn’t
worth hassle of looking at competitors
 Satisficing
 Means trusted shop can charge a bit more
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Business Models (B)
Branding
 Build up a good reputation, so customers trust you
to offer OK deals, good delivery
 If you’re trustworthy and “cheap enough”, it isn’t
worth hassle of looking at competitors
 Satisficing
 Means trusted shop can charge a bit more
 Marketing helps branding
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Business Models (B)
Branding
 Build up a good reputation, so customers trust you
to offer OK deals, good delivery
 If you’re trustworthy and “cheap enough”, it isn’t
worth hassle of looking at competitors
 Satisficing
 Means trusted shop can charge a bit more
 Marketing helps branding
 Customers visiting site helps
 Even if no purchase, just looking
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Business Must Change
Successful Internet travel agents differ from successful
pre-Internet travel agent
 Old: small shop selling generic flights to local
customers with high mark-up
 Joe’s travel agency
Where’s the added value for the custommer?
60
Business Must Change
Successful Internet travel agents differ from successful
pre-Internet travel agent
 Old: small shop selling generic flights to local
customers with high mark-up
 Joe’s travel agency
Where’s the added value for the custommer?
 New: focus on product niche, high mark-up extras,
advertising revenue, brand
 Expedia, escape2poland.co.uk
Where’s the added value for the customer?
61
Internet Business Model
Internet requires new business model(s)
Management issue (mostly), not technology
 But must be resolved in order for e-commerce to
really take off
Poor business models one cause of dot-com boom/bust
 Pouring in money before business model issue
resolved is a mistake!
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Organizational Change
Internet (and most new tech) cannot be fully exploited
unless society changes
Change is painful for companies
 Many bankrupt small travel agents
 Many bankrupt dot-com investors
63
Organizational Change
Change is painful for individuals
 Loss of skills: Joe has worked for 30 years selling
generic hols to Spain, does this well
 Must ditch this, learn new skills
 Dislike model: Joe dislikes “encouraging”
customers to buy overpriced insurance
 Loss of income: average income of travel agents
may go down, even if they adapt
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Summary
• Consumer Categories – value shoppers, convenience
shoppers
• Consumer Decision Criteria – value, service, convenience
• Online Purchasing Aids – portals, shop-bots, trust sites
• E-Tailing Business Models
• Click and Mortar Strategy
• E-tailing Problems – channel conflict, wrong revenue model
• Case study from Travel Industry
• Need for organizational change
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