1 CS5038 The Electronic Society 2. A Quick Overview of Electronic Retailing B2C Retailing: types and...

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CS5038 The Electronic Society2. A Quick Overview of Electronic Retailing

• B2C Retailing: types and ways to succeed

• Consumer Categories

• Consumer Decision Criteria

• Online Purchasing Aids

• E-Tailing Business Models

• Click and Mortar Strategy

• E-tailing Problems

• The middleman problem: e.g. travel industry

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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

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Prentice Hall, 2002Portals, trust sites (2 slides ago)

Dell

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Click and Mortar StrategyChannel: route to customer (through delares/vendors/re-

sellers/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

coordinate 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

Speak with one voice – integrate back-end systems Customer gets the same information through

telephone or webpage

Leverage the channels – use best channel for each part of business process E.g. order electronically; physical sales return.

Computing Science, University of Aberdeen 6

Customers are not all the same!

Consumer types» Individual consumers» Organizational buyers

Goal of shopping» Pragmatic: buy something useful, cheaply» Hedonistic: have fun

Personality» Impulsive buyers — purchase quickly» Patient buyers — make some comparisons first» Analytical buyers — do substantial research before buying

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Consumer Categories

Michael De Kare-Silver

47% want to shop

electronically

47% want to shop

electronically

19% Social Shoppers: enjoy shopping

14% Experimenters: ready to try new things

14% Experimenters: ready to try new things

17% Convenience: responsive to things which save time or make life easier

17% Convenience: responsive to things which save time or make life easier

16% Value shoppers: will purchase where they see value

16% Value shoppers: will purchase where they see value

14% Ethical:will purchase provided it is honest and ‘pc’

20% Habit die-hards: stuck in their ways

Shopping avoider

Hunter gatherers enjoy comparison/ search

New technologists because it's coolWarning: these statistics are probably out of date!

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Diffusion of Innovation

A widely-accepted picture of technology adoption

Rogers, Everett M. (1962). Diffusion of Innovations, Glencoe: Free Press.

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The Long (Fat) Tail

J.K. Rowling

Demand, in units

1000000+

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J.R. Hartley

A few big hits (green). A lot of stuff that sells poorly (yellow). But a lot of the potential sales (in the area under the curve) are yellow.

Titles, ordered by sales, decreasing

Trad. channel cut-off for viable stock

E-commerce. cut-off for viable stock

Consumer Behaviour

Prentice Hall, 2002

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Purchasing decision-making model

6 major phasesNeed identificationDevelop Consideration Set Information search and evaluation of alternativesChoice DecisionConfiguration/PersonalizationUpgrade/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 Criteria1. 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

1. Products—portfolio of items available

2. Price of the products

3. Promotion of products (ads & giveaways)

4. Packaging and delivery.

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Online Purchasing AidsShopping 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 PriceGrabber.com—comparison shopping

One-to-One Marketing• Build a long term association

• Meeting customers cognitive needs Customer may have novice, intermediate or expert skill

• E-loyalty—customer’s loyalty to an e-tailer costs Amazon $15 to acquire a new customer costs Amazon $2 to $4 to keep an existing customer

• Trust in EC Deterrence-based —threat of punishment Knowledge-based —reputation Identification-based —empathy and common values Referrals – Viral Marketing

• Personalisation…

Personalization• E-Commerce sites can treat customers differently

Offer recommendations, special deals Personalise web site Adjust prices

• In theory, “personalised shop” one of the great benefits of e-commerce

• Can also take advantage of more of long tail Don’t need to keep stock in same way as traditional shop Can do things like Print On Demand

Personalisation - Marketing Model“Treat different customers differently”

Prentice Hall, 2002

Personalisation

“Process of matching content, services, or products to individuals’ preferences”

Build profiles – N.B. Privacy Issues Solicit information from users Use cookies to observe online behavior Use data or Web mining

RecommendationBuild profiles

What has X bought?What has X looked at?Demographics: age, gender, etc

RecommendationRules: If X buys Harry Potter 6, recommend HP 7Data Mining: Other people who bought Harry

Potter also bought Lord of the RingsCollaborative: X’s overall buying profile is similar

to Y, so recommend whatever Y bought

Data Mining

Automated prediction of trends and behaviors Example: from data on past promotional mailings, find out

targets most likely to respond in future

Automated discovery of previously unknown patterns Example: find seemingly unrelated products often purchased

together Example: Find anomalous data representing data entry errors

Mining tools: Neural computing Intelligent agents Association analysis - statistical rules

Web Mining - Mining meaningful patterns from Web resources Web content mining – searching Web documents Web usage mining – searching Web access logs

searching for valuable information in extremely large databases

RecommendationsIf done well, perceived very positively

Real benefit, not just marketing spamCredit-card companies have done this well

Have the most purchasing data?

Data privacy issuesCan Visa sell data about you to Amazon?Spyware to track all of your web browsing?

Personalise Web Sites• Let customers create their own “shop front” focusing

on their interest• Adjust appearance (eg, for visually disabled, or strict,

religious consumers)• Do-able, not huge success

Personalised PricingCompanies would love to be able to charge people

different amounts for the same productAirline seats, cars, etcFull price for people who are keen, in a rush, don’t

care about moneyDiscount for choosy/finicky

Personalised Pricing (B)• Amazon, etc have tried this, but customers hated it.• So has gone “underground” for now.• Technology permits this, but society’s expectations

does not allow it


Advertising

E-Shops (and other sites) can make money via advertising» Google makes billions from its “sponsored

links”» Amazon has adverts as well


Web Advertising

Conventional advertising focuses on visual appeal

Less successful on web» Flashy animated banner adverts are a

nuisance and distraction


Targeted adverts

Web allows relevant adverts to be associated with a web page» Google sponsored links based on search» Amazon could display different adverts for

sci-fi and romance novel Very effective if done well

» So Web sites can charge more for targeted adverts


Web adverts

Initially treated like TV adverts, put huge effort into flashy multimedia banner ads

Now focusing on simple targeted adverts instead

Advertising models cannot be blindly moved from TV to web» need new models!

Consumer Satisfaction

Prentice Hall, 2002

Customer Focus Summary• Sometimes technology really helps

Recommender systems, targeted adverts• Sometimes technology works, but society doesn’t like

itDifferential pricing

• Trust – sine qua non

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E-Tailing Business Models (by revenue)1. Subscription models

Charge monthly or annual subscription fee for service2. Transaction fee models

Service fee based on the level of transaction offered3. Advertising-supported models

Charge fee to advertisers instead of customers4. 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)

Firms that have a fleet to deliver direct to consumers

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E-tailing Failures and Lessons Learned Profitability – Each additional sale must lead to additional 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 later) Static design or dynamic sites – rich databases of useful information

encourage customers to return Incorrect Revenue Model – many were relying on advertising. 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-upBuy product from supplier for £10, sell it to

customer for £15Difference (£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 benefitDisintermediation

Hard to make money by mark-up in e-Commerce.

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Example: FlightsPre-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: FlightsIn 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

How can travel agent make money in Internet age?Especially a small one, not Expedia

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Business ModelsSell extras, upgrades:

Sell flight at cost price, but extras at high markupE.g., insurance, deliveryUse loss leaders and technology lock-in, e.g.

http://www.bbc.co.uk/news/technology-19907546 .

Make sales elsewhereSell advertising space on websiteSell customer data.

Address niche marketSpecialize in travel to, say, Poland

Flights, hotel, airport transfer, toursSpecialize in selling flights to universitiesFailures from poor understanding of niche, e.g. ``Pink it,

Shrink it’’ http://www.bbc.co.uk/news/business-19884720

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 is

not worth the hassle of looking at competitors• Satisficing

Means trusted shop can charge a bit moreMarketing helps brandingCustomers visiting site helps

Even if no purchase, just looking

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Business Must ChangeSuccessful Internet travel agents differ from successful

pre-Internet travel agentOld: 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?

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Internet Business ModelInternet requires new business model(s)

Management issue (mostly), not technologyBut must be resolved in order for e-commerce to

really take off

Poor business models one cause of dot-com boom/bustPouring in money before business model issue

resolved is a mistake!

E-Commerce Bus. Mod. SummaryInitially tried to make e-shops similar to high street

shops. ButNeed different business modelTrust issues much more importantNeed appropriate legal framework

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Organizational ChangeInternet (and most new tech) cannot be fully exploited

unless society changes

Change is painful for companiesMany bankrupt small travel agentsMany bankrupt dot-com investors

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Organizational ChangeChange 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

E-Commerce in the News• OFT details widespread ongoing problems with

compliance with UK Distance Selling Regulations

• ``More than a third of the UK's top online retailers could be breaking consumer laws, the Office of Fair Trading (OFT) has said.’’

• http://www.bbc.co.uk/news/business-19910561

• http://www.oft.gov.uk/shared_oft/research/OFT1452_Websweep_report_2012.pdf

• Facebook pays £238 000 in (corporation) tax in the UK despite advertising revenue of £175 000 000 (estimated).

• Only reports £20 000 000 revenue in the UK.

• http://www.bbc.co.uk/newsbeat/1991045644

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