1. Chapter 2
Retailing in
Electronic Commerce
© Prentice Hall, 2000 1

2. Learning Objectives
Define the factors that determine the
business models of electronic marketing
Identify the critical success factors of direct
marketing
Design the desirable relationship in a direct
marketing setting
Analyze the critical success factors of
electronic intermediaries
Identify the typical products that sold well in
the electronic market
© Prentice Hall, 2000 2

3. Learning Objectives (cont.)
Observe the reactive strategy of traditional
department stores
Discuss whether electronic commerce should
always target global markets
Describe the consumer’s shopping
procedures on the Internet
Discuss the types of aiding-comparison-
shopping devices
Describe the impact of EC on
disintermediation and re-intermediation in
retailing © Prentice Hall, 2000 3

4. Overview of Electronic Marketing Structure
Consumer-oriented Electronic Marketing (B2C)
Mostly online; on the Internet
Growing offline too, mainly by using smart cards, although it is still
experimental
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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5. Advantages of Electronic Marketing
Customers can order from cyberstores 24
hours a day, 7 days a week from any place in
the world
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
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6. Forecast of the B2C Electronic Markets
Forecasting Institutions 1997 2000
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
[Source: OECD, 1997]
Initial Forecast of B2C Electronic Market Size
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7. Forecast of the B2C Electronic Markets (cont.)
Kinds of items sold (Unit: Millions of U.S. Dollars)
Items 1997 2000
Apparel 46 322
Gifts/flowers 45 658
Books 16 Not available
Food/drink 39 336
Clothing 89 322
Entertainment 85 1,250
Subscription services 120 966
Pornography 52 Not available
Music 9 186
Online games 127 1,013
Consumer finance 68 Not available
Consumer insurance 30 1,110
[Source: OECD, Sept. 1997]
Initial Forecast of B2C Electronic Market Segments
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8. 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
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9. Business Models of Electronic Marketing
Direct Marketing Manufacturers Electronic Mall
Vs. Vs.
Indirect Marketing Manufacturers Electronic Store
Active Strategic Posture Sales
Vs. Vs.
Reactive Strategic Posture Customer Services
Global Marketing Full Cybermarketing
Vs. Vs.
Regional Marketing Partial Cybermarketing
Electronic Store Generalized Mall
Vs. Vs.
Electronic Broker Specialized Mall/Store
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10. Business Models of Electronic Marketing (cont.)
Proactive Vs. reactive strategic posture toward
cybermarketing
Proactive strategic posture toward cybermarketing
a company’s main distribution channel is the Internet,
and internal management such as inventory and
operations management is focused to affect the benefit
of cybermarketing
Reactive strategic posture toward cybermarketing
the traditional physical distribution channel is left as the
company’s main distribution channel even though the
company has opened an online distribution channel
Global Vs. regional marketing
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11. Direct Marketing
Active and full direct Marketing
Dell Computer Corporation Case
Founding spirit of dell: telemarketing
Astonishingly high growth and returns
Revenue via the Internet
Dell’s products on the Internet
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12. Direct Marketing (cont.)
Dell’s Critical Success Factors
Price competitiveness owing to mass-
customization and direct marketing
Database marketing and customer intimacy
Global reach and value added services at a
single contact point
High reliability and reputation
Delivery support
Advanced web applications
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13. Direct Marketing (cont.)
Reactive and Partial Direct Marketing
Sell their products mainly through traditional channels
like department stores, discount stores, and
franchises
Ford Case
including dealers as partners is optimal because orders
that are received directly by the automakers 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
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14. Direct Marketing (cont.)
Reactive and Partial Direct Marketing
Ford’s reactive direct marketing model (procedure)
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15. Online Customer Service
Provided in conjunction with online sales
Provided to products which are sold offline
Example: service and support homepage
of Hewlett Packard (HP)
By using computer telephone integration
(CTI) technology, the same screen that a
customer sees can be automatically
displayed to the human agent (and vice
versa) who responds to the customer’s call
watching the online data about the customer
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16. 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
Electronic brokers
assist the search process of finding the
appropriate products and their vendors
Partial electronic mall
Electronic mall as one of existing distribution
channels © Prentice Hall, 2000 16

17. Active Electronic Intermediaries (cont.)
Generalized Electronic Intermediaries
Examples : Choice Mall, and iMall
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
Screening quality and reliability for assurance
• customers need a reliable screening capability of quality and
reliability of brands and companies
• e-brokers should create a trusted third party
Competing electronic channels
• several electronic channels help in finding the items needed
• e-brokers should provide some differentiated attraction
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18. Active Electronic Intermediaries (cont.)
Specialized Electronic Distributors
Cyber Bookstores
Amazon, Barnes and 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
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19. Reactive Electronic Department Store
The J.C. Penney Case
The Internet-based revenue
amounts to only 1 to 2% of $30.5 Internet-
billion total sales of 1997 (3.5% in Insurance based
1999) 3% 1%
Drug Stores
Updating prices and adding 32%
new items to the electronic
catalogs is convenient and Catalog Department
inexpensive 13% Stores
Overcoming the limitations of 51%
paper catalogs without
incurring extra distribution cost
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20. Reactive Electronic Department Store (cont.)
Electronic Department Stores Worldwide
Marks & Spencer in the U.K., La Redoute in
France, Jusco in Japan, Nordstrom in the U.S.A.,
and Lotte and Hyundai in Korea
Common strategy is finding significant benefits
from merchandising online
Offering electronic service on the Internet is a
supplementary channel of advertisement
By 2000, 3.5% of all U.S. major retailing will be
done online
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21. Regional Shopping Service
Peapod Case
The leading Internet supermarket, providing consumers with
broad product choices and local delivery services
Provide pictures of items, nutritional contents, past purchase
records
Users: middle and upper class people, some of whom are
single parents, and all of whom are very busy. Also sick and
elderly people or those without transportation.
$4.95/month membership fee, and $6.95 service free
+ 5% of the purchased amount
= cost of delivery service
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22. Procedures for Internet Shopping :
The Consumer’s Perspective
Preliminary requirement determination to
meet the needs
Search for the available items that can
meet the requirements
Compare the candidate items with
multiple perspectives: specification, price,
delivery date, and other terms and
conditions
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23. Procedures for Internet Shopping :
The Consumer’s Perspective (cont.)
Place an order
Pay the bill
Receive the delivered items and inspect;
possibly while using
Contact the vendor to get service and
support, or to return if disappointed
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24. Aiding Comparison Shopping
Search hypertext files by agents
Search in a web-based database both by
human and software agents within an e-mall
Comparable item retrieval and tabular
comparison
Comparisons over multiple malls
Comparisons as a multiple criteria decision
making
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25. The Impact of EC on Traditional Retailing System
Disintermediation and Re-intermediation
Disintermediation — the removal of organizations or
business process layers responsible for certain intermediary
steps in a given value chain
eliminating the traditional intermediaries, such as
wholesalers, distributors, and retailers, to reduce the cost
Re-intermediation — the shifting or transfer of the
intermediary functions, rather than the complete elimination
intermediation such as electronic shopping malls,
directory and search engine service, and comparison
aids using agents creates the role of re-intermediation
© Prentice Hall, 2000 25

26. The Impact of EC on Traditional
Retailing System (cont.)
Impact on Manufacturer’s Distribution Strategy
Manufacturer’s monopolistic Internet-based
distribution: Levi’s does not allow any one else to sell
the Levi’s product on the Internet (policy changed in
1999).
Coexistence with the dealers: This is the case in car
distribution.
Regionally mixed strategy: Nike sells on the Internet,
but only in the U.S.A.
Mass Customization for Make-to-Order:
Manufacturers have to be adaptive to the customized
orders of ultimate consumers. This means the
manufacturer should be ready for mass customization.
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27. Managerial Issues
From a manufacturer’s point of view:
Fully committed to
direct marketing, Regard the electronic
restructuring the OR store as an additional
current manufacturing channel of distribution
and distribution systems
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28. Managerial Issues (cont.)
From an intermediary’s point of view:
Retailing a
Commit to the OR specialized breed
directory service
of items
For existing retailer in the physical space:
How to transform its business posture to get the
highest possible customer satisfaction at a
minimum operating cost?
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