laudon_ec7_ppt11_GE

Copyright © 2011 Pearson Education, Ltd.

E-commerce

Kenneth C. LaudonCarol Guercio Traver

business. technology. society.

seventh edition

E-commerce: business. technology. society.

Global Edition



Chapter 9: Online Retail and Services

Copyright © 2010 Pearson Education, Inc. Slide 9-2

Chapter 11

E-commerce Retailing and Services



Blue Nile Sparkles For Your CleopatraClass Discussion

• Why is selling (or buying) diamonds over the Internet difficult?

• How has Blue Nile built its supply chain to keep costs low?

• How has Blue Nile reduced consumer anxiety over online diamond purchases?

• What are some vulnerabilities facing Blue Nile?• Would you buy a $5,000 engagement ring at

Blue Nile?

Slide 9-3


Major Trends in Online Retail, 2010-2011

• Growth in social shopping• Online retail remained profitable during recession• Online retail still fastest growing retail channel• Buying online a normal, mainstream experience• Selection of goods increases, includes luxury

goods• Informational shopping for big-ticket items

expands• Specialty retail sites show most rapid growth

Slide 9-4


The Retail Sector

• Most important theme in online retailing is effort to integrate online and offline operations

• U.S. retail market accounts for $10 trillion (70%) of total GDP

• Personal consumption:o Services: 61 %o Nondurable goods: 29 %o Durable goods: 10 %

• “Goods” vs. “services” ambiguity

Slide 9-5


The Retail Industry

• 8 segments (clothing, durable goods, etc.)o For each, uses of Internet may differ

Information vs. direct purchasing

• General merchandisers vs. specialty retailers

• Mail order/telephone order (MOTO) sector most similar to online retail sectoro Sophisticated order entry, delivery, inventory

control systems

Slide 9-6


Composition of the U.S. Retail Industry

Slide 9-7

SOURCE: Based on data from U.S. Census Bureau, 2010

Figure 11.1


E-commerce Retail: The Vision1. Reduced search and transaction costs; customers able

to find lowest prices2. Lowered market entry costs, lower operating costs,

higher efficiency3. Traditional physical store merchants forced out of

business4. 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 multichannel firms

and supported a few pure-play merchants

Slide 9-8


The Online Retail Sector Today

• Smallest segment of retail industry (6%)• Growing at faster rate than offline

segments• Revenues expected to resume 10-15%

growth between 2010 – 2014• 72% of Internet users bought online in

2010• Primary beneficiaries:

o Established offline retailers with online presence (e.g. Staples)

o First mover dot-com companies (e.g. Amazon)Slide 9-9


Online Retail and B2C E-commerce is Alive and Well

Slide 9-10

SOURCES: Based on data from eMarketer, Inc., 2010a; authors’ estimates.Figure 11.2


Multi-Channel Integration

• Integrating Web operations with traditional physical store operationso Provide integrated shopping experienceo Leverage value of physical store

• Types of integrationo Online order, in-store pickupo In-store kiosk or clerk Web order, home deliveryo Web promotions to drive customers to storeso Gift cards usable in any channel

Slide 9-11


Analyzing the Viability ofOnline Firms

• Economic viability: o Ability of firms to survive as profitable business

firms during specified period (i.e. 1-3 years)• Two business analysis approaches:

oStrategic analysis Focuses on both industry as a whole and firm itself

oFinancial analysis How firm is performing

Slide 9-12


Strategic Analysis Factors

• Key industry strategic factorso Barriers to entryo Power of supplierso Power of customerso Existence of substitute productso Industry value chaino Nature of intra-industry competition

• Firm-specific factorso Firm value chaino Core competencieso Synergieso Technologyo Social and legal challenges

Slide 9-13


Financial Analysis Factors

• Statements of Operationso Revenueso Cost of saleso Gross margino Operating expenseso Operating margino Net margin

Pro forma earnings

• Balance sheeto Assets, current assetso Liabilities, current liabilities and long-term debto Working capital

Slide 9-14


E-tailing Business Models

1.Virtual merchant Amazon

• Bricks-and-clicks Wal-Mart, J.C. Penney, Sears

• Catalog merchant Lands’ End, L.L. Bean, Victoria’s Secret

• Manufacturer-direct Dell

Slide 9-15


E-commerce in Action: Amazon.com

• Vision: o Earth’s biggest selection, most customer-centric

• Business model: o Amazon Retail, Third Party Merchants, and Amazon Web Services

(merchant and developer services)

• Financial analysis: o Greatly improved, profitable; still heavy long-term debt

• Strategic analysis/business strategy: o Maximize sales volume, cut prices

• Strategic analysis/competition: o Online and offline general merchandisers

Slide 9-16


E-commerce in Action: Amazon.com

• Strategic analysis/technology: o Largest, most sophisticated collection of online

retailing technologies available• Strategic analysis/social, legal:

o Antitrust, sales tax, patent lawsuitso Toys“R”Us suit settlement, State of New York

lawsuits• Future prospects:

o In 2009, net sales grew 28%, and significant gains thus far in 2010

o Ranks among top five in customer service, speed, accuracy

o However, net margins still much narrower than Wal-Mart

Slide 9-17


Common Themes in Online Retailing

• Online retail fastest growing channel on revenue basis

• Profits for startup ventures have been difficult to achieve

• Disintermediation has not occurred• Most significant online growth: Offline general

merchandiser giants extending brand to online channel

• Second area of rapid growth: o Specialty merchants with high-end goods, e.g. Blue

Nile

Slide 9-18


Insight on Technology

Using the Web to Shop ’Till You DropClass Discussion

• What do shopping bots and comparison sites offer consumers?

• Why are shopping bots more successful with hard goods than soft goods?

• What is the strategy of Shopping.com?• How can shopping bots compare luxury goods?• How does adding content to comparison sites

help consumers?

Slide 9-19


The Service Sector: Offline and Online

• Service sector: o Largest and most rapidly expanding part of

economies of advanced industrial nationso Concerned with performing tasks in and

around households, business firms, and institutions Includes doctors, lawyers, accountants, business

consultants, etc.o 76% of U.S. labor force - 108 milliono 58% of GDP - $7.7 trillion

Slide 9-20


Service Industries

• Major service industry groups:o Financeo Insuranceo Real estateo Travel o Professional services – legal, accountingo Business services – consulting, advertising,

marketing, etc.o Health serviceso Educational services

Slide 9-21


Service Industries

• Two categorieso Transaction brokerso Hands-on service providers

• Features:o Knowledge- and information-intense

Makes them uniquely suited to e-commerce applications

o Amount of personalization and customization required differs depending on type of service e.g. medical services vs. financial services

Slide 9-22


Online Financial Services

• Example of e-commerce success story, but success is somewhat different from what had been predicted

• Brokerage industry transformed• 4 of 5 households use online banking• Effects less powerful in insurance, real

estate• Multi-channel established financial

services firms continue to show strong growth

Slide 9-23


Financial Service Industry Trends

• Two important global trendso Industry consolidation

Financial Reform Act of 1998 amended Glass-Steagall Act and allows banks, brokerages, and insurance firms to merge

oMovement toward integrated financial servicesFinancial supermarket model

Slide 9-24


Industry Consolidation and Integrated Financial Services

Slide 9-25

Figure 11.3


Online Financial Consumer Behavior

• Consumers attracted to online financial sites because of desire to save time and access information rather than save money

• Most online consumers use financial services firms for mundane financial managemento Check balanceso Pay bills

• Greatest deterrents are fears about security and confidentiality

Slide 9-26


Online Banking and Brokerage

• Online banking pioneered by NetBank and Wingspan; no longer in existence

• Established brand-name national banks have taken substantial lead in market share

• Over 100 million people use online banking; expected to rise to 192 million by 2013

• Early innovators in online brokerage (E*Trade) have also been displaced by established brokerages (Fidelity, Schwab)Slide 9-27


The Growth of Online Banking

Slide 9-28

Figure 11.4 SOURCE: Based on data from comScore, 2010, eMarketer, Inc., 2010b.


Multi-channel vs. Pure Online Financial Service Firms

• Online consumers prefer multi-channel firms with physical presence

• Multi-channel firmso Growing faster than pure online firmso Lower online customer acquisition costs

• Pure online firmso Rely on Web sites, advertising to acquire customerso Users utilize services more intensivelyo Users shop more, are more price-driven and less

loyal

Slide 9-29


Financial Portals and Account Aggregators

• Financial portalso Comparison shopping services, independent financial

advice and financial planningo Revenues from advertising, referrals, subscriptionso e.g. Yahoo! Finance, Quicken.com, MSN Money

• Account aggregationo Pulls together all of a customer’s financial data at a

personalized Web siteo E.g. Yodlee: provides account aggregation

technologyo Privacy concerns; control of personal data, security,

etc.

Slide 9-30


Online Mortgage and Lending Services

• Early entrants hoped to simplify and speed up mortgage value chaino Difficulties in branding and simplifying mortgage generation

process

• Three kinds of online mortgage vendor todayo Established online banks, brokerages, and lending organizationso Pure online mortgage bankerso Mortgage brokers

• Online mortgage industry has not transformed process of obtaining mortgageo Complexity of process

Slide 9-31


Online Insurance Services

• Online term life insurance: o One of few online insurance with lowered search

costs, increased price comparison, and lower priceso Commodity

• Most insurance not purchased online• Online industry geared more toward

o Product information, searcho Price discoveryo Online quoteso Influencing the offline purchasing decision

Slide 9-32


Online Real Estate Services

• Early vision: Local, complex, and agent-driven real estate industry would transform into disintermediated marketplace

• However, major impact is influencing of purchases offlineo Impossible to complete property transaction onlineo Main services are online property listings, loan calculators,

research and reference material

• Despite revolution in available information, there has not been a revolution in the industry value chain

Slide 9-33


Insight on Society

Hotel Tax Battle: The Online Travel Industry vs. Local Government

Class Discussion

• Who do you think is right in this tax battle – the online travel industry or local governments?

• What do you think will happen if local governments are successful in this fight?

• What is the Internet Travel Tax Fairness Act?

Slide 9-34


Online Travel Services

• One of the most successful B2C e-commerce segments

• 2007: First year online bookings greater than offline

• 2009: Online travel bookings declined slightly due to recession but expected to grow to $118 billion by 2013

• For consumers: More convenience than traditional travel agents

• For suppliers: A singular, focused customer pool that can be efficiently reached through onsite advertising

Slide 9-35


Online Travel Services (cont.)

• Travel an ideal service/product for Interneto Information-intensive producto Electronic product—travel arrangements can be

accomplished for the most part onlineo Does not require inventoryo Does not require physical offices with multiple

employeeso Suppliers are always looking for customers to fill

excess capacityo Does not require an expensive multi-channel

presence

Slide 9-36


Online Travel Services Revenues

Slide 9-37

SOURCE: Based on data from eMarketer, 2010c.Figure 11.5


The Online Travel Market

• Four major sectors:o Airline ticketso Hotel reservationso Car rentalso Cruises/tours

• Two major segments:o Leisure/unmanaged business travelo Managed business travel – expected to offer greater

growth opportunities• Corporate online-booking solutions (COBS)

Slide 9-38


Projected Growth of Online Travel Market Segments

Slide 9-39

SOURCES: Based on data from eMarketer, Inc., 2010cFigure 11.6


Insight on Business

ZipcarsClass Discussion

• What is the Zipcar business model? How does it make money?

• How does Zipcar use the Internet?• Does Zipcar compete with traditional car

rental firms?• Will Zipcar work only in urban markets?

Can it expand to the suburbs?

Slide 9-40


Online Travel Industry Dynamics

• Intense competition among online providers

• Price competition difficult• Industry consolidation

o Stronger, offline established firms purchasing weaker online firms to create multi-channel travel sites

• Industry impacted by meta-search engineso Commoditize online travel

Slide 9-41


Online Career Services

• Top sites generate over $1 billion annually• Two main players: CareerBuilder, Monster• Traditional recruitment:

o Classified, print ads, career expos, on-campus recruitment, staffing firms, internal referral programs

• Online recruitingo More efficient, cost-effective, reduces total time-to-

hireo Enables job hunters to more easily distribute resumes

while conducting job searcheso Ideally suited for Web due to information-intense

nature of process

Slide 9-42


It’s Just Information: The Ideal Web Business?

• Recruitment ideally suited for Web o Information-intense processo Initial match-up doesn’t require much

personalization• Saves time and money for both job

hunters and employers• One of most important functions:

o Ability to establish market prices and terms (online national marketplace)

Slide 9-43


Online Recruitment Industry Trends

• Consolidation • Diversification: Niche employment sites• Localization

o Local vs. national, Craigslist• Job search engines/aggregators:

o “Scraping” listings: Indeed.com, JobCentral• Social networking:

o LinkedIn; Facebook apps

Slide 9-44


All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic,

mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America.


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