Copy of laudon-traver_ec17_ppt_ch09_accessible.pptx

E-commerce 2023: business. technology.
society.
Seventeenth Edition
Chapter 9
Online Retail and Services
Copyright © 2024, 2022, 2020 Pearson Education, Inc. All Rights Reserved

Learning Objectives (1 of 2)
9.1 Explain how to analyze the economic viability of an
online firm.
9.2 Understand the environment in which the online retail
sector operates today.
9.3 Identify the primary types of online retailers and
understand the challenges each type faces.
9.4 Describe the major features of the offline and online
service sector.

Learning Objectives (2 of 2)
9.5 Discuss the trends taking place in the online financial
services industry.
9.6 Describe the major trends in the online travel services
industry today.
9.7 Identify current trends in the online job recruitment and
career services industry.
9.8 Understand the business models of on-demand service
companies.

Lemonade: Stirring Up the Insurance
Industry
• Class Discussion
– How has Lemonade used information technology to
innovate?
– What issues are raised by Lemonade’s use of artificial
intelligence?
– What distinguishes the “insurtech” services described
in the case from those offered by traditional insurers?
– What factors would you consider in deciding whether
or not to use an “insurtech” service such as
Lemonade’s

Analyzing the Viability of Online Firms
• Economic viability:
– Ability of firms to survive as profitable business firms
during specified period (i.e., 1-3 years)
• Two business analysis approaches:
– Strategic analysis
 Focuses on both industry and firm itself
– Financial analysis
 How firm is performing

Strategic Analysis Factors (1 of 2)
• Key industry strategic factors
– Barriers to entry
– Power of suppliers
– Power of customers
– Existence of substitute products
– Industry value chain
– Nature of intra-industry competition

Strategic Analysis Factors (2 of 2)
• Firm-specific factors
– Firm value chain
– Core competencies
– Synergies
– Technology
– Social and legal challenges

Financial Analysis Factors (1 of 2)
• Statements of Operations
– Revenues
– Cost of sales
– Gross margin
– Operating expenses
– Operating margin
– Net margin
 Pro forma earnings: Earnings before interest,
taxes, depreciation, and amoritization (EBITDA)

Financial Analysis Factors (2 of 2)
• Balance sheet
– Assets
– Current assets
– Liabilities
– Current liabilities
– Long-term debt
– Working capital

The Retail Sector: Offline and Online
• U.S. retail market
– Personal consumption of goods accounted for $5.5
trillion (about 24%) of total GDP (gross domestic
product)
• Composed of 7 major segments
– Consumer durables, general merchandise, specialty
stores, food and beverage, MOTO (mail
order/telephone order), gasoline and fuel, online retail
– For each, uses of Internet may differ
 Information versus direct purchasing

Figure 9.1 Composition of the U.S. Retail
Industry

What’s New in Online Retail
• Retail e-commerce, as well as mobile, social, and local e-
commerce, all continue to grow.
• Online platforms such as Shopify enable online retail by
small and medium-sized businesses.
• Increased emphasis on improved shopping experience
• Mobile retail apps become a “must-have”
• Increased use of interactive marketing techniques
• Big data and analytics power increased use of predictive
marketing
• Challenging economic climate in 2022

Online Retailing: The Vision
• The Vision
– Reduced search and transaction costs; customers able to
find lowest prices
– Lowered market entry costs, lower operating costs, higher
efficiency
– Traditional physical store merchants forced out of business
– Some industries would be disintermediated
• Few of these assumptions were correct-structure of retail
marketplace has not been revolutionized
• Internet has created new venues for omni-channel firms and
supported a few pure-play merchants

The Online Retail Sector Today (1 of 2)
• On of the smallest segment of retail industry (about 15%)
• Growing at faster rate than offline segments
• Computers and consumer electronics generated highest
percentage of revenue in 2021, followed by the apparel
and accessories category
• More than 80% of Internet users will buy online in 2022
• Primary beneficiaries:
– Established offline retailers with online presence (e.g.,
Staples)
– Online-only retailers (e.g., Amazon)

Figure 9.3 The Growth of Online Retail in
the United States

The Online Retail Sector Today (2 of 2)
• Omnichannel integration
– Integrating web operations with physical store
operations
 Leverage value of physical store
 Types of integration, e.g., online order, in-store
pickup
• Rapidly growing mobile platform and m-commerce
• Social e-commerce growth
• Location-based marketing of local goods and services

Insight on Technology: Stitch Fix Builds a
Business on Big Data and Artificial Intelligence
– How does big data and artificial intelligence enable
predictive marketing?
– Are there any drawbacks to the increasing use of
predictive marketing?
– Have you experienced predictive marketing in your
own shopping? If so, what was the experience like -
were suggestions accurate and helpful?
– How has the Covid-19 pandemic impacted Stitch
Fix?

E-commerce in Action: Online Retail
Business Models
• Four main types
– Virtual merchants
– Omni-channel merchants (bricks-and-clicks)
– Catalog merchants
– Manufacturer-direct
• Each type faces different strategic environments and
different industry and firm economics

Figure 9.4 Share of Online Retail Sales by
Type of Company

Online Retail Business Models:
Virtual Merchants
• Single-channel e-commerce firms that generate almost
all revenue from online sales
• Examples: Amazon, Wayfair, Overstock, Blue Nile
• Challenges
– Building business and brand name quickly
– Low barriers to entry invite many competitors
– Substantial costs to build and maintain website
presence
– Steep learning curve

E-commerce in Action: Amazon (1 of 3)
• Vision:
– Lowest prices, best selection, most customer-centric
• Business model:
– Retail, third-party merchants, and Amazon Web Services
• Financial analysis:
– Challenged by Covid-19 pandemic, but showed continued
revenue growth, and growth in net operating income
• Strategic analysis/business strategy:
– Maximize revenue growth, lower costs and prices, m-
commerce, new products and services; expand delivery
capacity

• Strategic analysis/competition:
– Online and offline general and catalog
merchandisers, web services
• Strategic analysis/technology:
– Largest, most sophisticated collection of online
retailing technologies available
• Strategic analysis/social and legal challenges:
– Covid-19 pandemic; government investigations
based on antitrust concerns

• Future prospects:
– Profitability of Amazon Web Services a major positive
– Subscription revenue from Amazon Prime
memberships also a key component
– Continues to invest in future products and services
– Posted lower revenue growth and net loss for first six
months of 2022
 Economic climate: inflation, reduced consumer
demand
 Persistence of supply chain shortages
 Aggressive expansion during Covid-19 pandemic

Omnichannel Merchants
• Have network of physical stores as primary retail channel
but also have online operations
• Challenges:
– High cost of physical buildings and staff
– Need to coordinate prices across channels
– Need to develop methods of handling cross-channel
operations
– Building credible e-commerce presence
• Examples: Walmart, Macy’s, Target, Staples

Manufacturer-Direct
• Single or multi-channel manufacturers who sell to
consumers online without intervention of retailers
• Challenges
– Channel conflict
– Switching from supply-push model to demand-pull
model
– Developing credible e-commerce presence
• Examples
– Apple, Dell, Sony
– Digital native verticals: Warby Parker, Everlane

Catalog Merchants
• Established companies that have a national offline
catalog operation as their largest retail channel, but who
also have online capabilities
• Challenges:
– High costs for printing and mailing
– Need to leverage existing assets and competencies
to new technology environment
– Need to develop cross-channel operations
– Building credible e-commerce presence
• Examples: Lands’ End, L.L. Bean, CDW Corp, Cabela’s

The Service Sector: Offline and Online
• Service sector:
– Largest and most rapidly expanding part of
economies of advanced industrial nations
– Concerned with performing tasks in and around
households, business firms, and institutions
 Includes doctors, lawyers, accountants, business
consultants, and so on
– Employs 4 out of 5 U.S. workers
– About 80% of U.S. GDP

Service Industries
• Major service industry groups:
– Finance
– Insurance
– Real estate
– Travel
– Professional services-legal, accounting
– Business services-consulting, advertising, marketing,
and so on
– Health services
– Educational services

Online Financial Services
• E-commerce has transformed banking and financial
services
– Major institutions deploy online services
• Online financial consumer behavior
– Most online consumers use online financial services
– Covid-19 pandemic has accelerated usage
• Fintech: Startup companies seeking to disrupt traditional
financial services by using technology to unbundle
services and deliver targeted solutions

Online Banking
• Established brand-name national banks have taken
substantial lead in market share
• Neobanks: Independent, digitally native, digital-only
bank
– Examples: Chime, Aspiration, Revolut
• Almost 80% of U.S. adults use online banking
– Covid-19 pandemic significantly boosted number of
users
• Millennials and Gen-Zers adopting mobile banking at
much higher rate than those who are older

Online Brokerage
• Early innovators in online brokerage (E*Trade) have
been displaced by established brokerages (Fidelity,
Schwab)
• Majority of those who have brokerage accounts interact
digitally with online brokerage firms
• Newer online brokerages
– Examples: Robinhood, Public, Acorns,
Commonstock
• Online financial advisors (robo-advisors)
– Examples: Betterment, Wealthfront, and Personal
Capital

Online Mortgage and Lending Services
• Market is slowly growing; dominated by:
– Established online banks and online financial
services firms
– Traditional mortgage vendors
– Online mortgage firms
 Example: Rocket Mortgage
• Online mortgage industry has not transformed process
of obtaining mortgage
• Online lending services (fintechs)
– Lending Club, Social Finance Inc., Prosper, Avant,
Kabbage

Online Insurance Services
• Online term life insurance
– One of few insurance products with lowered search costs,
increased price comparison, lower prices
• Most insurance still not purchased online
• Online industry geared more toward
– Product information, search; price discovery; online
quotes; influencing offline purchase decision
• Insurtech: startup companies using technologies such as big
data, machine learning, and artificial intelligence to disrupt
traditional insurance industry
– Examples: Lemonade, Hippo

Online Real Estate Services
• Early vision: Disintermediation of a complex industry
• However, major impact is influence of purchases offline
– Impossible to complete property transaction online
– Main services are online property listings, loan
calculators, research and reference material, with
mobile apps increasing
• Despite revolution in available information, there has not
been a revolution in the industry value chain
• Fintech examples: OpenDoor, Qualia

Online Travel Services (1 of 2)
• Prior to Covid-19 pandemic, one of the most successful
B2C e-commerce segments
– More travel is booked online than offline
– Pandemic caused 50% drop in online travel services
revenue in 2020
– Began to resume in 2021; expected to reach pre-
pandemic levels in 2022
• Popular because :
– More convenient for consumers than traditional
travel agents
– Singular, focused customer pool that can be
efficiently reached through online advertising

Online Travel Services (2 of 2)
• Travel an ideal service/product for Internet
– Information-intensive product
– Digital product
– Does not require inventory
– Does not require physical offices with multiple
employees
– Suppliers are always looking for customers to fill
excess capacity
– Does not require an expensive multi-channel
presence

Figure 9.5 Online Travel Services
Revenues

The Online Travel Market
• Four major sectors:
– Airline tickets
 Greatest source of revenue
– Hotel reservations
– Car rentals
– Travel packages
• Corporate online-booking solutions (COBS)

Online Travel Industry Dynamics
• Intense competition among online providers
• Price competition difficult
• Industry impacted by meta-search engines
– Commoditize online travel
• Industry consolidation
• Mobile applications are also transforming industry
• Social media content, reviews have an increasing
influence on travel purchases

Insight on Society: Phony Reviews
• Class discussion:
– Should there be repercussions to individuals and/or
businesses for posting false reviews of products or
services?
– Can phony reviews be identified and moderated?
– Do you rely more on some types of reviews or
comments on websites and blogs over others?

Online Job Recruitment and Career
Services (1 of 2)
• Traditional recruitment tools:
– Classified and print ads, career expos, on-campus
recruitment, staffing firms, internal referral programs
• Online recruiting
– More efficient, cost-effective, reduces total time-to-
hire
– Enables job hunters to more easily distribute resumes
while conducting job searches
• Three main players: LinkedIn, CareerBuilder, Monster
– Job listing aggregators: Indeed, SimplyHired
– Online reviews of companies: GlassDoor

Services (2 of 2)
• Recruitment ideally suited for the Web
– Information-intense process
– Initial match-up doesn’t require much personalization
• Saves time and money for both job hunters and
employers
• One of most important functions:
– Ability to establish market prices and terms (online
national marketplace)

Services Industry Trends
• Social recruiting: More than 90% of recruiters search for
candidates on LinkedIn
• Mobile: Two-thirds of job applications in 2021 completed
on a mobile device
• Video and remote recruiting: Trend toward remote
recruiting accelerated by Covid-19 pandemic:
• Job search engines/aggregators: Indeed, SimplyHired
• Data analytics, artificial intelligence, and algorithms
– Hiring by algorithm
– Sifting online applications for key words

On-Demand Service Companies
• Platforms for users to share/lease assets and resources
– Cars, lodging, homes, labor
– Fees collected from sellers and buyers
• Use of online reputation systems, peer review
• Successful firms are disrupters, lowering cost of services
– Uber
– Airbnb
– Instacart
– Grubhub
– TaskRabbit

Insight on Business: Food on Demand:
Instacart and Grubhub
– What features or practices have made Instacart
successful?
– What challenges do grocery and meal delivery
services face?
– Have you used any grocery or meal delivery
services? If so, what was your experience?
– Why have both Instacart and Grubhub been the
subject of controversy throughout their histories?

Careers in E-commerce
• Position: Associate, E-commerce Initiatives
• Qualification/Skills
• Preparing for the Interview
• Possible Interview Questions

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