E Commerce

Internet Marketing

E-Commerce

Topics

• E-commerce takes off• The pace of e-commerce• Distribution strategies• Competing against the Net

E-Commerce Takes Off

• E-Commerce Influence = the impact of the Net on purchases made entirely offline

Example: Consumer visits music web site to gather info on new releases, but visits retail store to make purchase

E-Commerce Influence, Ordering and Buying


• E-Commerce Ordering = capturing orders that are placed online but paid later via telephone or in-store

Example – A consumer purchases a new car through a web site, but drives to the dealer to pick it up



• E-Commerce Buying = combines ordering and paying online

Example – A consumer orders an item of clothing on a web site and completes the entire transaction online.


E-Commerce Takes OffConsumer spending online is on the

rise! 1997 (Billions) 1998 (Billions) Growth

Paid for online $5.1 $11.0 54%

Ordered online, paid for offl ine

$10.2 $15.5 34%

Offl ine orders influenced by

the Net $44.8 $50.8 12%

Total $60.1 $77.3 32%

Fig 12.3a

E-Commerce Takes OffBreakdown of 1998 Online Consumer

Spending$13.5 - Researched online, ordered and paid for offline

$10.8 – Ordered online, paid for offline $16.3 - Researched

online, ordered and paid for offline

$11.0 – Paid for online

$4.7 – Ordered online, paid for offline

BIG TICKET ITEMS SMALL TICKET ITEMS

Fig 12.3b

E-Commerce Takes OffE-Commerce Impact on Web Sites

23% 25%

50%40%

54%20%

5%

4%32% 9%

10%

20%

4%

5%9%

10%30%

38%14% 23%37%

20%

4% 9% 5%

0%

20%

40%

60%

80%

100%

Brand Content Financial Travel Shopping

e-mail address notavailable

No response

3+ days

2 days

1 day

Figure 12.4 Majority of E-commerce Sites with One-Day

Response

• Adding e-commerce raises the stakes

• E-commerce creates incentives to improve performance and customer responsiveness– E-mail response time is

critical– Web-server performance

is important

• E-commerce sites are most responsive


• E-commerce creates strong incentives for companies to enhance their online use of personalization– Raises the value of users’ online experience– Improves customer loyalty– Allows for detailed information gathering

• The personalization/e-commerce link is especially strong for business-to-business marketing

E-Commerce Impact on Web Sites


• Total company purchases determines the amount of personalization Dell provides

• Greater personalization leads to even more purchases and a higher customer lifetime value

The Personalization/E-commerce Link

Figure 12.6: E-Commerce Is Reinforced by Personalization

Amountof

Personalization

E-CommerceActivity


• Acquisition costs have gotten higher– Pioneering sites like Amazon.com received massive

amounts of PR, which lowered their costs of acquisition– As competitors have entered the marketplace,

acquisition costs have climbed– Analysts recommend spending 70% of Year One revenues

and 30% of Year Two revenues on customer acquisition

• High acquisition costs lead to– A search for cheaper acquisition methods– A premium on building customer loyalty– A drive to expand the total amount of online business

done with a particular customer

E-Commerce Impact on Web Sites

E-Commerce Takes OffThe Profit Pool Concept

• Increasing the total amount of business done with a particular customer means that firms need to take advantage of opportunities to add products and services that fit well with current customer purchases and add profit to the firm

• Alliance partners can help to make this happen

• The profit pool is a useful tool to identify and evaluate potential online online partners

• A profit pool identifies the different products in an industry and calculates their industry share of revenue and their profitability

E-Commerce Takes Off3 Categories of profit pools

1. Anchor Services – Service providers that form the basis of an e-commerce Web site

2. Extension Services – Alliance partners with an anchor service

3. Neutral Services – Profit pool components without high profits or customer contact frequency

Desirable Features of Online E-Commerce Allies Anchor Service Extension Service

High customer acquisition cost Profitable pool component

Frequent customer content High profit/revenue ratio

Strong positioning Consistent position to anchor

Trusted Effective, reliable

Tab

le

12.1

E-Commerce Takes OffThis

suggests that auto insurance, loans and

leasing plans are

highly desirable partners for both new and used car dealersFigure 12.7


The battle for customers takes place during:

1. Researching and selecting the vehicle

2. Finding a dealer and price

3. Choosing financing, insurance, warranty

4. Closing the deal

New intermediaries complicate the split of profits between elements of

the profit pool

Example: Online car sales


S tage S ervice Providers Growth Dr ivers

Consumer Par t icipat ion (millions of households)

1998 2003

1. R esear ch and selec t veh ic le

A ut oS it e Car and D r iver Car Pr ices .com Consumer R epor t s E dmund ’s I nt el l iChoice J .D . Power K elley B lue B ook M anuf ac t ur er s Y ahoo! A ut os

I nc r ease in online households

E asy access t o deep pr oduc t inf or mat ion f r om t r ust ed b r ands

Power f ul wor d of mout h

2 .0 7 .9

2 . F ind a dealer and pr ice

A ut o- B y- T el.com A ut oConnec t A ut oV ant age A ut oweb .com Car Point Car s .com D ealer s M anuf ac t ur er s Pr iceline.com S t oneage

N o- haggle pr ic ing D ealer s h ir e I nt er net -

f ocused salespeople D ealer s est ab lish and

impr ove web s it es D ealer s set up t wo- way

e- mail

0 .8 5 .2

Table 12.3: Steps for Online Auto Buying


Stage Service Providers Growth Drivers

Consumer Participation (millions of

households) 1998 2003

3. Choose financing, insurance and warranty

Financing CarFinance.com Ford Credit GMAC Lending Tree Insurance GEICO Direct InsWeb Progressive Warranty Warranty Dir. Warranty Gold

Increased comfort with internet transaction security

Technology cooperation between banks and dealers

Dealers accept third-party financing

Banks and insurers offer incentives to go online

0.0 1.2

4. Close the deal

Saturn/Daewoo Dealer networks Luxury brands Online buying services

Higher quality vehicles easy to buy without a test drive

Money-back guarantees and extended warranties

Fixed pricing allows dealers to close sales online

0.0 0.5*

Number rounded

up

Table 12.3 continued

The Pace of E-Commerce

• Web sites provide customers with information that’s difficult and expensive to get any other way

• Customers easily obtain information about– companies– products– services

• The Net has provided something new and valuable

E-Commerce Buying

The Pace of E-CommerceFor e-commerce to continue to grow as

quickly as forecasters expect, online selling must excel on the fundamentals that drive

buyersPrice Online buying is

cheaper than traditional methods

Assortment The range of products better matches buyer desires

Convenience The timing, location and buying process are superior

Entertainment Buying online is more fun than alternatives


• Regular lower prices– An online site can

dramatically reduce selling costs for retailers

– Competitive pressures keep prices low

$0

$5

$10

$15

$20

$25

$30

$35

A Man in Full

Wolf e

Sugar Busters

Steward

I nto Thin Air

Krakauer

Memoirs of a

Geisha Golden

List Amazon.com Barnes&Noble.com

Bestsellers For Less Wal-mart.com Shopping.com

Figure 12.9 – Comparison of Bestseller Prices

Saving Money: The Simplest Reason to Buy Online


• Sales tax is seldom charged on online purchases– Products delivered electronically - software

downloads– When the merchant doesn’t have a physical

presence in the state where the product is delivered

• Shipping costs vary– Consumers notice and react to the cost of shipping– Shipping to home addresses is expensive

• Package delivery companies are optimized for delivery to commercial addresses

• One large delivery to a retailer is replaced by many small deliveries

Saving Money: The Simplest Reason to Buy Online


• Virtually unlimited shelf space• 24/7 service• Convenient for repeat purchases• One-stop shopping• Ability to comparison shop

Top Reason Cited for Retail Store Dissatisfaction, Christmas 1998

1. Can’t find a salesperson 26%

2. Unknowledgeable staff 18%

3. Parking problems 17%

4. Waiting in lines 14%

5. I nsufficient selection 13%

6. Crowded merchandise 7%

7. Unfriendly staff 7%

8. Difficulty finding things 7%

9. I nconvenient location 5%

10. Hours not convenient 2%

Table 12.6

Physical Retail Problems

E-tailers Offer Assortment & Convenience


• Less developed due to technical issues such as slow consumer access speeds

• Exception is adult entertainment, which earned nearly $1 billion in 1998

• Other entertainment forums include– auction sites– chat rooms– instant messaging– discussion groups

Entertainment

Distribution Strategies

Figure 12.13

Alternative Channel Responses

Channel Division

Electronic

CommercePhysical

Distribution

Manufacturer

DirectCybermediary

Existing

Retailers

Online

Traditional

Retailers

Experience

Economy

Channel Structure Options

• Shift sales entirely to manufacturer direct (Dell, Cisco)

• Use existing retailers and their web sites (autos, perfume)


• Three sources of channel conflict

1. Goal divergence – objectives of manufacturer or service provider differ

2. Responsibility disputes – pertain to customer handling, territorial assignments, functions to be served and technology to be used

3. Differing perceptions of reality – actions may be misconstrued and lead to conflict

Channel ConflictTraditional distribution channels are

threatened by online commerce

Distribution StrategiesFigure 12.14 Likelihood of Channel

Conflict

12.7%

I ndustrial Manuf acturers

I ndustrial Customers

Manuf acturer's

Representative

I ndustrial

Distributor

Manuf acturer's

Sales Branches

I ndustrial

Distributor

Manuf acturer's

Sales Branches

Manuf acturer's

Representative

I ndustrial

DistributorDirect

Sales

Low

16.8%

3.6% 48.7%

8.6%

9.6%

Distribution StrategiesE-Commerce and the Proper Distribution

System• Disintermediation occurs when

layers of a distribution channel are dropped

Example – online brokerages substituting for stock brokers• Reintermediation occurs when

layers of a distribution channel are added

Example – services such as auto-locating that combine multi-vendor information and comparison shopping

Distribution StrategiesE-Commerce and the Proper Distribution

System• Build-to-Order

– Direct selling enables mass customization

– Allows companies to manufacture unique products quickly and cost effectively

– Lowers the cost of holding inventory

Distribution StrategiesReal-Time Marketing

• Personally customized goods or services continuously update themselves – Continuously track changing

customer needs– Without intervention by corporate

personnel– Often without conscious or overt

input from the customer

• Requires direct sales and direct distribution


However, intermediaries reduce the total number of contacts a firm has

Channel Contacts and Learning

• Advantages of using intermediaries

– They know more about customers

– They have greater knowledge of local markets

– They carry a broader product line within a category

– They carry multiple product categories

Distribution StrategiesData-Driven Intermediaries

• Advantages of using intermediaries– They can build a profile of customer choices

based on a much wider array of business than a direct seller would acquire

• Incentives for using intermediaries– Customer coalitions – customers join

intermediaries that protect their privacy while sharing appropriate knowledge to vendors

– Seller scope – a multi-product vendor can learn much more about customers and use this info across product categories

Competing Against the Net

• Selective price discounts– Bricks and mortar merchants can offer

discounts for products that can also be bought online

• Concentrating attention on late adopters of technology– Some consumers have a lot of fear,

uncertainty and doubt about the online shopping experience

– This slows their defection to new online outlets

Retailer Responses to the E-Commerce Challenge


Creating and staging experiences

• Pine and Gilmore stress that the economy is evolving toward experienced-based value

• Retailers function less as sellers of products than as stagers of events


Stage Experiences

Deliver Services

Make Goods

Extract Commodities

Market PremiumPricing

Un

diff

ere

nti

ate

dD

iffere

nti

ate

dC

om

peti

tive P

osit

ion


Adopt the Internet to create a hybrid system• Bricks and mortar retailers can move certain parts

of their retailing function online• Physical locations often a superior way to

– Acquire customers– Set up customer relationships– Create a strong retail brand image

• The online presence– Drives business to the physical locations– Provides 24/7 convenience for loyal customers– Adds new functionality – gift registries and shopping

services


Date post:	14-May-2015
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E Commerce

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