Transcript Direct Marketing - Høgskolen i Molde

Chapter 2
Retailing in
Electronic Commerce
Judith Molka-Danielsen, Høgskolen i Molde
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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
Judith Molka-Danielsen, Høgskolen i Molde

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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-comparisonshopping devices
 Describe the impact of EC on
disintermediation and re-intermediation
in retailing
Judith Molka-Danielsen, Høgskolen i Molde

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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
Judith Molka-Danielsen, Høgskolen i Molde
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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
Judith Molka-Danielsen, Høgskolen i Molde
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Forecast of the B2C Electronic Markets
Forecasting Institutions
1997
2000
IDC
VSAComm
VeriFone
Actif Media
Killen & Assoc.
Yankee
Jupiter
E-land
EU
USA
EITO
AEA/AU
Hambrecht & Quest
Forrester
1,000
48
350
436
117,000
3,500
65,000
46,000
775,000
144,000
580
10,000
228,000
850
45
450
200
363
200
1,170
518
200,000
45,000
23,200
6,579
Initial Forecast of B2C Electronic Market Size [Source: OECD, 1997]
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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
Initial Forecast of B2C Electronic Market Segments
[Source: OECD, Sept. 1997]

Judith Molka-Danielsen, Høgskolen i Molde
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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
Judith Molka-Danielsen, Høgskolen i Molde
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Business Models of Electronic Marketing
Direct Marketing Manufacturers
Vs.
Indirect Marketing Manufacturers
Electronic Mall
Vs.
Electronic Store
Active Strategic Posture
Vs.
Reactive Strategic Posture
Sales
Vs.
Customer Services
Global Marketing
Vs.
Regional Marketing
Electronic Store
Vs.
Electronic Broker
Full Cybermarketing
Vs.
Partial Cybermarketing
Judith Molka-Danielsen, Høgskolen i Molde
Generalized Mall
Vs.
Specialized Mall/Store
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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
 Sales Vs. customer services

© Prentice Hall, 2000
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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
Judith Molka-Danielsen, Høgskolen i Molde
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Direct Marketing (cont.)

Dell’s Critical Success Factors
– Price competitiveness owing to masscustomization 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
Judith Molka-Danielsen, Høgskolen i Molde
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Direct Marketing (cont.)

Reactive and Partial Direct Marketing
– Ford’s reactive direct marketing model
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Judith Molka-Danielsen, Høgskolen i Molde
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



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
Judith Molka-Danielsen, Høgskolen i Molde
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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
Judith Molka-Danielsen, Høgskolen i Molde
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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
Judith Molka-Danielsen, Høgskolen i Molde
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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
Judith Molka-Danielsen, Høgskolen i Molde
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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
Judith Molka-Danielsen, Høgskolen i Molde
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Reactive Electronic Department Store

The J.C. Penney Case
– The Internet-based
revenue amounts to only
1 to 2% of $30.5 billion
total sales of 1997 (3.5%
in 1999)
– Updating prices and adding
new items to the electronic
catalogs is convenient and
inexpensive
– Overcoming the limitations
of paper catalogs without
incurring
extra
Judith Molka-Danielsen,
Høgskolen
i Molde distribution
Insurance
3%
Drug
Stores
32 %
Internetbased
1%
Catalog Department
13 %
Stores
51 %
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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
Judith Molka-Danielsen, Høgskolen i Molde
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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
Judith Molka-Danielsen, Høgskolen i Molde
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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
Judith Molka-Danielsen, Høgskolen i Molde
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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
Judith Molka-Danielsen, Høgskolen i Molde
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Aiding Comparison Shopping
Search hypertext files by agents
 Search in a web-based database both by
human and software agents within an emall
 Comparable item retrieval and tabular
comparison
 Comparisons over multiple malls
 Comparisons as a multiple criteria
decision making

Judith Molka-Danielsen, Høgskolen i Molde
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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
Judith Molka-Danielsen,
Høgskolen
i Molde creates the role of re-intermediation 25
The Impact of EC on Traditional
Retailing System (cont.)
 Impact on Manufacturer’s Distribution
– Manufacturer’s monopolistic Internet-based
Strategy
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
Judith Molka-Danielsen, Høgskolen i Molde
customization.
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Managerial Issues

From a manufacturer’s point of view:
Fully committed to
direct marketing,
restructuring the
current manufacturing
and distribution systems
Judith Molka-Danielsen, Høgskolen i Molde
OR
Regard the electronic
store as an additional
channel of distribution
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Managerial Issues (cont.)

From an intermediary’s point of view:
Commit to the
directory service

OR
Retailing a
specialized breed
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?
Judith Molka-Danielsen, Høgskolen i Molde
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