E-commerce in actionE-commerce in action

RetailRetail

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Main sectors in second generation e-Main sectors in second generation e-commerce commerce

retailing on the web;retailing on the web; online service industries; online service industries; B2B E-commerce; B2B E-commerce; auctions, portals and communities; auctions, portals and communities; online content providers.online content providers.

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Retailing on the web Retailing on the web

E-commerce is changing every kind of business – offline as E-commerce is changing every kind of business – offline as well as online:well as online:

in the USA women now outnumber men online; in the USA women now outnumber men online; the average age of web surfers is increasing;the average age of web surfers is increasing; teenagers spend as much time on the internet as they do teenagers spend as much time on the internet as they do

watching TV;watching TV; online consumers are rapidly becoming just like offline ones;online consumers are rapidly becoming just like offline ones; over 240 million Americans have web access; over 240 million Americans have web access; UK spent more than £2 billion online in 2008 – massive UK spent more than £2 billion online in 2008 – massive

growth;growth; all categories of services and products are involved;all categories of services and products are involved; Walmart now conducts all business over a private B2B Walmart now conducts all business over a private B2B

network.network.

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E-Commerce influence on offline E-Commerce influence on offline spending spending

a consumer purchasing behaviour change has taken place. a consumer purchasing behaviour change has taken place. online purchases are dwarfed by influence on offline purchases.online purchases are dwarfed by influence on offline purchases. some 60 million customers in Europe bought goods offline after some 60 million customers in Europe bought goods offline after

having researched them online. having researched them online. in the USA 3 out of 4 shop for new cars online but most buy in the USA 3 out of 4 shop for new cars online but most buy

offline;offline; they often go to dealers with their web printouts, details and they often go to dealers with their web printouts, details and

deals; deals; different countries have different habits, e.g. in Italy and Spain different countries have different habits, e.g. in Italy and Spain

people are twice as likely to buy offline after internet research people are twice as likely to buy offline after internet research whereas in England and Germany (the two most developed whereas in England and Germany (the two most developed markets) the numbers are evenly split;markets) the numbers are evenly split;

used car sales are one of the biggest online growth areas in used car sales are one of the biggest online growth areas in USA. USA.

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A merger of online and offline A merger of online and offline worlds worlds

Multichannel selling will involve a combination of :- Multichannel selling will involve a combination of :- – traditional shops traditional shops – printed cataloguesprinted catalogues– home shopping on TV home shopping on TV – phone-in order service phone-in order service – e-commerce enabled web sitee-commerce enabled web site– option of collecting goods from a physical shop (old option of collecting goods from a physical shop (old

fashioned but very popular). fashioned but very popular).

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The lure of retail e-commerceThe lure of retail e-commerce

lower transaction costs by automating processes; lower transaction costs by automating processes; larger purchases per transaction e.g. Amazon gives a larger purchases per transaction e.g. Amazon gives a

description of a book but also shows related books which description of a book but also shows related books which people are buying;people are buying;

integration into business cycle e.g. FedEx made more integration into business cycle e.g. FedEx made more information available when they introduced online tracking;information available when they introduced online tracking;

people can shop in different ways e.g. the ability to :- people can shop in different ways e.g. the ability to :- – build an order over several days build an order over several days – configure products and see actual prices configure products and see actual prices – build complicated custom orders easilybuild complicated custom orders easily– compare prices between multiple vendorscompare prices between multiple vendors

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The lure … (cont)The lure … (cont)

larger catalogues – imagine trying to fit the information in larger catalogues – imagine trying to fit the information in Amazon’s database into a paper catalogue;Amazon’s database into a paper catalogue;

improved customer interaction – automated software tools improved customer interaction – automated software tools help interaction e.g. a customer gets an email on help interaction e.g. a customer gets an email on confirmation of the order, another when it is shipped, and confirmation of the order, another when it is shipped, and one after it arrives.one after it arrives.

the motive is obvious – a happy , satisfied customer is the motive is obvious – a happy , satisfied customer is more likely to be loyal and buy again.more likely to be loyal and buy again.

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Hard aspects of retail Hard aspects of retail e-commercee-commerce

getting traffic to come to your site;getting traffic to come to your site; getting traffic to return to your site a second time; getting traffic to return to your site a second time; differentiating yourself from the competition; differentiating yourself from the competition; getting people to actually buy something; getting people to actually buy something; integrating an e-commerce site with existing integrating an e-commerce site with existing

business data.business data.

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Major sectors of retail Major sectors of retail e-commercee-commerce

small business start-ups –using ASPs or simple systems small business start-ups –using ASPs or simple systems from online suppliers;from online suppliers;

established pure web operators like Amazon and eBay; established pure web operators like Amazon and eBay; established MOTO vendors like Dell and LandsEnd; established MOTO vendors like Dell and LandsEnd; large traditional companies like M+S , Debenhams and large traditional companies like M+S , Debenhams and

Tesco;Tesco; sometimes called ‘clicks and brick’ or ‘clicks and mortar’sometimes called ‘clicks and brick’ or ‘clicks and mortar’

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Major sectors –small Major sectors –small businesses/start- ups businesses/start- ups

wide range of suppliers on the web for both systems and wide range of suppliers on the web for both systems and application software, economically priced;application software, economically priced;

venture capitalists slowly coming back to dot.coms witness venture capitalists slowly coming back to dot.coms witness early IPO for Salesforce after ecommerce 1;early IPO for Salesforce after ecommerce 1;

easier entry for niche markets; easier entry for niche markets; use of big sites like Amazon and eBay is now available to use of big sites like Amazon and eBay is now available to

small players to show off their wares;small players to show off their wares; in a recent study eBay found over 5 million people in the in a recent study eBay found over 5 million people in the

USA alone now make a full-time living from trading on its USA alone now make a full-time living from trading on its site. site.

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E-scenario – start-ups E-scenario – start-ups

Starting an e-business Starting an e-business the Internet has dramatically reduced the cost of setting up a business the Internet has dramatically reduced the cost of setting up a business

and especially reaching potential customers and especially reaching potential customers What is needed ? What is needed ? a personal computer;a personal computer; high speed broadband connection with space for a good website; high speed broadband connection with space for a good website; marketing costs low; marketing costs low; commission eBay, Amazon etc. to list your wares;commission eBay, Amazon etc. to list your wares; use Paypal for payments (credit card) which saves the costuse Paypal for payments (credit card) which saves the cost of opening a merchant account; of opening a merchant account; use UPS or other carrier to deliver anywhere and provide tracking use UPS or other carrier to deliver anywhere and provide tracking

facilities.facilities. Use drop shipping to reduce inventoryUse drop shipping to reduce inventory

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Established pure web operators – Established pure web operators – Amazon Amazon

created in 1998;created in 1998; in 1998 on sales of $609 million loss was $124 million;in 1998 on sales of $609 million loss was $124 million; in 2000 on sales of $2.7 billion the loss was $1.4 billion;in 2000 on sales of $2.7 billion the loss was $1.4 billion; in 2003 on sales of $5.3 billion the profit was $35 million;in 2003 on sales of $5.3 billion the profit was $35 million; In 2012 Amazon sold $ 48 billion; In 2012 Amazon sold $ 48 billion; heavy marketing costs initially;heavy marketing costs initially; then cost of building warehouses;then cost of building warehouses; hiring thousands of employees and training them. hiring thousands of employees and training them.

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Amazon - business model Amazon - business model

Five fundamentals:- Five fundamentals:- low prices low prices an enormous selectionan enormous selection availabilityavailability convenience convenience good information about products. good information about products.

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Amazon – products Amazon – products

Amazon started with books – a huge selection Amazon started with books – a huge selection online with very keen prices;online with very keen prices;

added other media – music, dvds , videos etc. added other media – music, dvds , videos etc. media sales in 2003 were some $4 billion while media sales in 2003 were some $4 billion while

the rest was electronics and general merchandise; the rest was electronics and general merchandise; latest ventures are health products, jewellery, latest ventures are health products, jewellery,

sports/leisure, toys and footwearsports/leisure, toys and footwear CEO Jeff Bezos thinks he can sell most things on CEO Jeff Bezos thinks he can sell most things on

line.line.

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Amazon – trading platform Amazon – trading platform

Its aim is to become Earth’s most customer-centric Its aim is to become Earth’s most customer-centric companycompany

example: “search inside the book”, online equivalent of people example: “search inside the book”, online equivalent of people browsing through a book in a physical bookstore.browsing through a book in a physical bookstore.

allows a customer to search the text of over 800,000 books plus print allows a customer to search the text of over 800,000 books plus print on demandon demand

already encouraging people to buy more books already encouraging people to buy more books now allows large retailers to sell through its websitenow allows large retailers to sell through its website arranged a number of affiliate relationships e.g. ToysRus, Debenhams, arranged a number of affiliate relationships e.g. ToysRus, Debenhams,

Miss Sixty, Calvin KleinMiss Sixty, Calvin Klein in fact it is becoming a huge trading platform for other companiesin fact it is becoming a huge trading platform for other companies now allows merchants to sell Amazon products - AStorenow allows merchants to sell Amazon products - AStore ACSI says Amazon hits 88% for customer satisfaction – as close as ACSI says Amazon hits 88% for customer satisfaction – as close as

any company has come to matching the ideal.any company has come to matching the ideal. (American Customer Satisfaction Index)(American Customer Satisfaction Index)

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Amazon – cost containment Amazon – cost containment

profits are helped by rigorous cost cutting at profits are helped by rigorous cost cutting at regular intervals;regular intervals;

the Toyota principle – reducing defects and the Toyota principle – reducing defects and problems in its highly sophisticated order process problems in its highly sophisticated order process as as earlyearly as possible; as possible;

one main quality measure is the number of one main quality measure is the number of contacts per unit ordered, i.e. the number of times contacts per unit ordered, i.e. the number of times an employee has to intervene; an employee has to intervene;

keeping this measurement low means lower costs keeping this measurement low means lower costs and greater customer satisfaction. and greater customer satisfaction.

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Established MOTO vendors Established MOTO vendors

Dell, founded in 1984, is the world’s largest direct Dell, founded in 1984, is the world’s largest direct computer manufacturer. It is a systems supplier computer manufacturer. It is a systems supplier that aims to:- that aims to:-

custom build computers for customers custom build computers for customers eliminate middlemen and keep prices loweliminate middlemen and keep prices low more effectively meet the technology needs of its more effectively meet the technology needs of its

customers customers keep inventory as low as possible keep inventory as low as possible create a ‘manufacturer direct’ channel.create a ‘manufacturer direct’ channel.

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Dell – manufacturer direct Dell – manufacturer direct

sells directly to consumers without retailers or distributorssells directly to consumers without retailers or distributors (Going back to retailers slowly – TESCO and office (Going back to retailers slowly – TESCO and office

suppliers) suppliers) retailers must compete on price and inventoryretailers must compete on price and inventory manufacturer does not have cost of inventory, physical manufacturer does not have cost of inventory, physical

storage or sales staffsstorage or sales staffs Dell adopted the demand-pull model Dell adopted the demand-pull model traditional manufacturers use the supply-push model and traditional manufacturers use the supply-push model and

have some difficulty in adapting to the demand-push have some difficulty in adapting to the demand-push model.model.

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Dell – demand-pull Dell – demand-pull

products are not made until an order is products are not made until an order is received; received;

Dell adopted this build-to-order strategy Dell adopted this build-to-order strategy from the outset; from the outset;

inventory turnover is faster; inventory turnover is faster; reduces component and finished goods reduces component and finished goods

inventory levels;inventory levels; virtually eliminates stock obsolescence.virtually eliminates stock obsolescence.

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Dell – business model Dell – business model

the direct model simplifies operations;the direct model simplifies operations; eliminates supporting a wholesale and retail network; eliminates supporting a wholesale and retail network; saves money because of no costly mark-ups;saves money because of no costly mark-ups; gives complete control over its customer database;gives complete control over its customer database; allows Dell to build and ship custom computers nearly as allows Dell to build and ship custom computers nearly as

fast as a mail order supplier;fast as a mail order supplier; industry rivals typically carry 50+ days of inventory;industry rivals typically carry 50+ days of inventory; Dell carries 5 days which reduces capital tied up.Dell carries 5 days which reduces capital tied up.

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Dell business model online Dell business model online

Dell early on recognised its model could move online relatively Dell early on recognised its model could move online relatively straightforwardly. straightforwardly.

It has made it easy for customers (particularly corporate) to:It has made it easy for customers (particularly corporate) to:– investigate product offerings;investigate product offerings;– complete order forms and purchase orders;complete order forms and purchase orders;– track orders in real time;track orders in real time;– review order histories online.review order histories online.

It has developed hundreds of thousands of premier pages for its It has developed hundreds of thousands of premier pages for its corporate clientele worldwide. corporate clientele worldwide.

For small businesses it has created; For small businesses it has created; – an online virtual account executive;an online virtual account executive;– a spare parts ordering system; a spare parts ordering system; – virtual help desk – direct access to technical support data.virtual help desk – direct access to technical support data.

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Business model – technology Business model – technology

a sophisticated MIS is at the core of its operation;a sophisticated MIS is at the core of its operation; it enables it to track each unit from initial sale to post-sales it enables it to track each unit from initial sale to post-sales

support and service;support and service; links manufacturing facilities and operations worldwide;links manufacturing facilities and operations worldwide; coordinates: coordinates:

– shipments and deliveries of componentsshipments and deliveries of components– order configurations order configurations – inventory levelsinventory levels– marketing marketing – deliveriesdeliveries

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Business model – strategy Business model – strategy move everything online;move everything online; keep minimum sales staff for corporate customers; keep minimum sales staff for corporate customers; outsource telephone and enquiry systems; outsource telephone and enquiry systems; add more ‘beyond the box’ offerings :-add more ‘beyond the box’ offerings :-

– warranty, warranty, – product integration and installation servicesproduct integration and installation services– software, software, – peripheralsperipherals– technology consultingtechnology consulting

includes over 30,000 software and peripheral products from leading includes over 30,000 software and peripheral products from leading manufacturers.manufacturers.

maintain facilities in North America, Europe, Asia and South America.maintain facilities in North America, Europe, Asia and South America.

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Large offline ‘clicks and bricks’ Large offline ‘clicks and bricks’ companies companies

Companies with large physical stores who Companies with large physical stores who have added the Internet as a sales channel. have added the Internet as a sales channel. Examples :- Examples :-

M+S – clothes and food; M+S – clothes and food; Sears – bought LandsEnd as a catalogue Sears – bought LandsEnd as a catalogue

internet company;internet company; Tesco – largest UK supermarket chain.Tesco – largest UK supermarket chain. Littlewoods – developed from catalogue Littlewoods – developed from catalogue

companycompany

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Sears (LandsEnd) Sears (LandsEnd)

Sears is a large USA department store; Sears is a large USA department store; it has a growing online sales channel;it has a growing online sales channel; it bought LandsEnd in 2002;it bought LandsEnd in 2002; LandsEnd is a catalogue merchant with a growing LandsEnd is a catalogue merchant with a growing

and innovative presence on the web;and innovative presence on the web; it has the advantage of very efficient, fast it has the advantage of very efficient, fast

response order entry and fulfilment systems. response order entry and fulfilment systems.

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LandsEnd LandsEnd sells stylish (?) clothing, accessories, shoes, luggage and household sells stylish (?) clothing, accessories, shoes, luggage and household

goods;goods; now is the largest seller of clothing online;now is the largest seller of clothing online; rated as one of the most effective and innovative websites in the world; rated as one of the most effective and innovative websites in the world;

invests some $40 million a year in IT; invests some $40 million a year in IT; innovations like ‘Live and Shop’ allow assistance from a service innovations like ‘Live and Shop’ allow assistance from a service

representative viewing the same website together;representative viewing the same website together; using clever algorithms it now offers a system for custom-made clothes using clever algorithms it now offers a system for custom-made clothes

– a sort of Saville Row by mouse click:– a sort of Saville Row by mouse click:– groups of customers have their bodies scanned;groups of customers have their bodies scanned;– they answer questions and the algorithm works out the perfect fit; they answer questions and the algorithm works out the perfect fit; – it learns as it goes along interpreting the answers. it learns as it goes along interpreting the answers.

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Tesco Tesco U.K’s largest supermarket chain; U.K’s largest supermarket chain; took the lead in online groceries;took the lead in online groceries; goods ordered over the internet are picked from the shelves of the goods ordered over the internet are picked from the shelves of the

nearest supermarket and delivered to homes within set time slots;nearest supermarket and delivered to homes within set time slots; the order process is simple and each customer has a record the order process is simple and each customer has a record of what is bought;of what is bought; if certain items are not available – the nearest match is sent; if certain items are not available – the nearest match is sent; if not wanted it can be returned;if not wanted it can be returned; special software has been written to study buying patterns;special software has been written to study buying patterns; In contrast, Webvan , a Californian supermarket, chose an elaborate In contrast, Webvan , a Californian supermarket, chose an elaborate

central warehouse system but couldn’t make it pay.central warehouse system but couldn’t make it pay.