Increasing prescription drug prices are driving millions of U.S. consumers, particularly seniors, to purchase prescription drugsonline (Pharmacy Choice 2006). Both the number of consumers buying online prescription drugs and the number of Web sitesselling them are increasing (CASA 2006). Lower prices and convenience are driving online prescription sales (Lipsman 2005;Rosson 2006).

Although online prescription drug buyers represent a minority of U.S. consumers, this minority is significant and growing.An average of 9 percent of adults purchased prescription drugs online during 2005, up from 4 percent in 2004 (Catalyst Online2005). Those buying online tend to come from higher income households and have at least 6 years’ of online experience. Drugspurchased online were mostly for chronic disorders (e.g., arthritis). Pew Research suggests that although Americans may becautious now, they will likely grow more comfortable as they learn of friends and neighbors ordering without trouble (CNN.com2004). Some of the more established sites offering online prescription drugs are drugstore.com (which is partnered with RiteAid), cvs.com, more.com, and longs.com. These and other companies are experimenting with different strategies to capture ashare of the $140 billion market.

Although welcoming the low prices and convenience of buying prescription drugs online, consumers are concerned aboutsafety and quality issues (Lipsman 2005). This is particularly the case with low-price drugs bought at non–U.S. online phar-macies (Rock 2005). Experts and legislators also are worried. They fear that the drugs purchased could be inappropriate forthe health condition of the particular consumer or that the drugs could contain inferior or low-quality ingredients. Experts andlegislators also worry about substance abuse and drug addiction. Such concerns led to the Online Pharmacy Consumer ProtectionActs of 2006 and 2007 being introduced into the U.S. Congress (Medical News Today 2006 and WashingtonWatch.com 2007).

An innovation that might significantly help consumers of prescription drugs is a new e-commerce company, BidRx, thathas a Web site that connects consumers and prescribing doctors with pharmacies, manufacturers, and benefit sponsors in aneffort to promote better pharmaceutical decision making along with lower prices and convenience. As well as offering qualityinformation on health-care issues, including prescription drugs, BidRx offers consumers the opportunity to put their prescrip-tions out to bid, so they can compare prices and services from various pharmacies. Price savings from this activity have beenreported to be very significant (Pharmacy Choice 2006).

Another element of prescription drugs and e-commerce is e-prescriptions. E-prescriptions include not only the distributionof drugs but also the entering of prescriptions by physicians by voice, handwriting, or typing directly into special wireless PDAsthat can recognize any entry and have it confirmed by the prescriber (e.g., PocketScript from Zix Corp.). Approximately 7,000people die each year due to unforeseen drug interactions. According to Callaghan (2004), more than 150 million calls are madefrom pharmacies to prescribers in order to verify handwritten prescriptions. It is easy to see the advantage of e-prescriptions that perform drug-interaction searches as well. According to AIS Healthcare (2004), one of the largest HMOsin the United States, WellPoint Health Networks, invested $40 million in electronic prescriptions. The system is managed byMicrosoft’s health-care group.

Café Rx is an alliance of organizations (including Microsoft, Cisco, and HP) whose objective is to accelerate the adoptionof e-prescriptions. Also, several national prescribing communication networks have been created (e.g., RxHub and SureScriptsMessenger Services).

Online File W3.1 Selling Prescription Drugs Online

Chapter Three: Retailing in Electronic Commerce: Products and Services 1

2 Part 2: Internet Consumer Retailing

REFERENCES FOR ONLINE FILE W3.1AIS Healthcare. “More E-Prescribing Programs

Begin, Partly in Response to Medicare Law.” March 12,2004. aishealth.com/DrugCosts/DCMREPrescribingBegins.html (no longer available online).

Callaghan, D. “Pharmacists Tap Net.” eWeek, September 20,2004.

CASA. “Report on Selling Drugs Online.” ColumbiaUniversity Center on Addiction and SubstanceAbuse (CASA), June 19, 2006, casacolumbia.org/a b s o l u t e n m / t e m p l a t e s / Pr e s s R e l e a s e s . a s p x ?articleid=445&zoneid=56 (accessed September 2006).

Catalyst Online. “Pulse Point: Tracking Trends in OnlineHealth Care Strategies.” November 2005. catline.com/pdfs/PulsePoint-November%202005.pdf#search=%22catalyst%20Online%20Pulse%20Point%22(accessed September 2006).

CNN.com. “Study: Few Buy Drugs Online.” October 11, 2004.cnn.com/2004/HEALTH/10/11/Internet.drugs.ap(no longer available online).

Lipsman, A. “Defying Governmental Opinions andSafety Concerns, Millions of Americans Turn toNon-Traditional Online Pharmacies.” ComScore

Networks, April 2005. comscore.com/press/release.asp?id=571 (accessed September 2006).

Medical News Today. “Bill Would Prohibit Online Sale ofMedications, Controlled Substances Without ValidPrescription.” August 9, 2006. medicalnewstoday.com/medicalnews.php?newsid=49050 (accessed September2006).

Pharmacy Choice.“ Worry Over Online Purchases of Drugs asNumber of Online Pharmacy Sites Selling ControlledDrugs Increases for the Third Straight Year.” PharmacyChoice, July 28, 2006. pharmcychoice.com/News/article.cfm?Article_ID=33297 (accessed September 2006).

Rock, A. “Cut Your Drug Bills In Half.” CNNMoney,July 1, 2005. money.cnn.com/magazines/moneymag/moneymag_archive/2005/07/01/8263128/index.htm(accessed September 2006).

Rosson, P. “Internet Pharmacies,” in Khosrow-Pour (2006).WashingtonWatch.com. “S. 980, The Online Pharmacy

Consumer Protection Act of 2007.” washingtonwatch.com/bills/show/110_SN_980.html (accessed August2007).

CatToys.com is a specialized e-tail site that sells cat toys. ItsWeb site (cattoys.com) is designed to appeal to cat enthusi-asts, with cat images everywhere and informal typefaces toput buyers at ease. It has no banner ads, is easy to navigate,is updated weekly, and displays products in clear categories.The company’s retail prices are comparable with those ofother pet stores and are kept low through aggressive costcontrol. Buyers can receive discounts by donating cat toys toanimal shelters. Marketing is mostly accomplished throughsearch engines and an affiliate program in which any catlover can participate. The site has no membership or person-alization features.

CatToys.com hosts its site through Yahoo!’s MerchantSolutions (smallbusiness.yahoo.com/merchant/). This allowsit to use sophisticated technologies (e.g., cookies for theshopping-cart process and payment security) and have accessto a large audience. Because Yahoo! takes care of the Website technology, CatToys.com can concentrate on its core

competency—selecting the right cat toys and marketingthem effectively. CatToys.com is an example of a low-volumespecialized store that attracts people with specific shoppingneeds.

A sister company is dogtoys.com, which offers similarservices including gift certificates and the ability to earnpoints. Both companies are evaluated at epinions.com.

Questions1. Visit cattoys.com and examine the company’s revenue

model.

2. Examine the relationship between cattoys.com anddogtoys.com. These two URLs are owned by the samecompany. Why do they have separate URLs for eachproduct, whereas Amazon.com is adding more productsunder one URL?

ONLINE FILE W3.2

CATTOYS.COM, A SPECIALTY E-TAILER

Chapter Three: Retailing in Electronic Commerce: Products and Services 3

REFERENCES FOR ONLINE FILE W3.2cattoys.com (accessed November 2006).dogtoys.com (accessed November 2006).embracepetcommunity.com (accessed November 2006).

ONLINE FILE W3.3

GATEWAY’S “BOOK-IT-IN-THE-BOX” E-TRAVELSOLUTIONSGateway, Inc., a Fortune-500 computer manufacturing com-pany that employs 21,000 people globally, with sales andsupport centers on four continents, focuses on meetingclients’ technological needs through strong customerrelationships.

In 2002, the company’s travel expenses exceeded$10 million and were growing. Gateway took a proactivestep to address these operating costs by implementing anInternet-based travel management service for its domestictravelers. With solutions from e-Travel (e-travel.com),Gateway implemented the “Book-It-in-the-Box” travel pro-gram. With this application, Gateway employees can plan,book, and purchase complete travel itineraries, including air,car, rail, and hotel, using a standard Web browser. Also, thecompany can incorporate the elements of its travel program,including travel policies, preferred suppliers, and negotiatedrates, into an Internet-based self-service system for travelplanning and purchasing.

The results have been dramatic. The company projected$1.2 million in savings over the first 12 months of usage.A critical part of installing new software was gainingemployee acceptance. This can be especially tricky when itcomes to corporate travel because employees fear that theymay be forced into uncomfortable or unfamiliar travel habits.Gateway phased in the new program over a month and wassuccessful in achieving employees’ behavioral change due to

a number of factors: careful communication about the initia-tive, guiding employees through the process, and respondingto employees’ questions. Teams from e-Travel and Gatewayworked together to deliver a variety of useful tools to benefitemployees, including in-person and Web-based trainingsessions and placing a “Book-It-in-the-Box” icon oncomputer desktops company-wide. E-travel’s reservationswere integrated with the global distributions system ofGateway’s travel agency, Rosenbluth International’s Senior-Level Management’s Acceptance, which further validatedthe use of the program. Future initiatives will bring evenmore travel functions online, including full integration withthe travel agency’s technology, rollout of e-Travel’s pretripapproval function, international bookings, and wirelessaccess. E-travel Mobile will give traveling employees theability to update existing travel plans, book new ones, andobtain flight status. The wireless program will help Gatewayachieve its goal of 100 percent agent-free travel bookings.

Questions1. What category of e-commerce is this?

2. Identify the areas in which cost savings havematerialized for Gateway.

3. How was employee participation achieved?

REFERENCES FOR ONLINE FILE W3.3e-travel.com (accessed October 2006). gateway.com (accessed October 2006).

4 Part 2: Internet Consumer Retailing

ONLINE FILE W3.4

MATCHING WORKERS WITH JOBS IN THE PHILIPPINESThe Philippines is a country with many skilled employees butfew open jobs. In January 1999, the government created aspecial Web site that matches people with jobs. The site ispart of a computerized project of the Department of Labor,and it is a free service.

For those who do not have computers or Internet access,the government placed kiosks in hundreds of locationsthroughout the country. The job placement system is also con-nected with Philippine embassies around the world, especiallyin countries where there are many overseas Filipino workers,so that they can find a job and return home. Governmentemployees help those applicants who do not know how to usethe system.

This system gives job seekers a chance to find a job thatwould best suit their qualifications. At the heart of the sys-tem are its matchmaking capabilities. For the matchmaking

process, a database stores all the job vacancies submitted bydifferent employers. Another database stores the jobapplications fed into the system. The system matches quali-fied applicants with companies. It also automatically performsa ranking based on the matches. This job-matching featuredifferentiates this site from other online job sites. Everythingis done electronically, so job seekers can see the matchresults in seconds. For more on matching people and jobs,see Agrawal et al. (2003).

Questions1. What is the role of Internet kiosks in the Philippines’

employment system?

2. How are jobs matched with applicants?

REFERENCES FOR ONLINE FILE W3.4Agrawal, V., J. M. Manyika, and J. E. Richards. “Matching

People and Jobs.” The McKinsey Quarterly, SpecialEdition: Organization (2003).

Chapter Three: Retailing in Electronic Commerce: Products and Services 5

ONLINE FILE W3.5

THE EUROPEAN JOB MOBILITY PORTAL (EURES CV-SEARCH) AND XING.COMEURES CV-Search (europa.eu.int/eures) is an electronicmeeting point for employers and job seekers. Job seekers canuse the site to introduce themselves to employers; employerscan use the site to find and contact promising candidates.EURES CV-Search gives job seekers the ability to post theircurriculum vitas (CVs i.e., resumes) on the site if they wish toadvertise that they would like to work in another country.

Employers can view job seekers’ CVs by registering withthe service. Job seekers can post their CVs anonymously. Ifthis option is selected, employers can only contact the jobseeker through the EURES service. Job seekers can presenttheir profiles in English, German, or French.

EURES is a free service for both job seekers and employers,subject to the rules set down by individual EURES countrymembers.

What is offered on the site?

◗ Job vacancies throughout Europe, by country◗ CV postings by area and country◗ Information about the transitional rules regarding move-

ment of workers to and from all member countries◗ Information about living and working conditions in each

country◗ Information about training opportunities◗ Information about public employment services

◗ Job-related news◗ Personalized pages and accounts for applicants and

employers◗ Employment statistics◗ Contact information and other resources◗ A search engine for quick searches◗ Search capabilities for employers to find the right CV

A similar site is xing.com, which is organized as a business/social network (see Chapter 1).

Questions1. Enter europa.eu.int/eures and look at some CVs. How

do you think jobs and people are matched?

2. Assume that you are looking for a job in one of thecountries served by the portal. Do you think that thesite offers sufficient information?

3. What tasks are performed by search agents?

4. Do you have any suggestions about how to improvethis site?

5. Compare europa.eu.int/eures and xing.com. Write areport.

REFERENCES FOR ONLINE FILE W3.5europa.eu.int/eures (accessed December 2006). xing.com (accessed December 2006).

6 Part 2: Internet Consumer Retailing

REFERENCES FOR ONLINE FILE W3.6Deighton, J. “Webvan: Groceries on the Internet.” Harvard

Business Review Case, 2003.Dignan, L. “Fresh Direct: Ready to Deliver.”

Baselinemag.com, February 17, 2004. findarticles.com/p/articles/mi_zdbln/is_200402/ai_ziff119342 (accessedNovember 2006).

Enos, L. “Webvan Offers Same Day Delivery in Seattle.”E-Commerce Times, June 5, 2001. ecommercetimes.com/story/10261.html (accessed November 2006).

The online grocery e-business is based on the logic that people have to eat. It seemed that the Internet’s multimedia capabilitiesand 24/7 availability of ordering would be the key to creating a desirable market for grocery delivery. The success of such a marketstrongly depends on a logistics infrastructure that enables effective and efficient delivery of groceries, perishable products, andprepared foods to customers’ homes within an acceptable timeframe.

Webvan’s answer to the logistics problem was a huge automated warehouse for each market. Each warehouse wouldprocess product distribution equal to that of 18 grocery stores. The cost was initially estimated to be between $25 and $35 million per hub. A month after the company’s formal launch, Webvan signed a $1 billion contract with the constructiongiant Bechtel to build distribution centers in as many as 26 U.S. markets over a 2-year period.

Webvan opened its initial business in the San Francisco Bay area, with its hub located in Oakland, in June 1999. The company’s prices were less than regular supermarkets. Shoppers could schedule deliveries between 1:30 P.M. and 10:00 P.M.Tuesday through Friday, and between 9:00 A.M. and 5:00 P.M. on Saturday. Deliveries were within a 30-minute window 92 percent of the time, and orders were filled accurately 99 percent of the time. Customer service included friendly delivery andprofessional, cooperative customer service representatives to handle mistakes and returns.

Between June and September of 1999, Webvan served 21,000 consumers and sales were $4.2 million. In September, repeatcustomers made up 70 percent of the company’s business. However, the hub was functioning at less than 20 percent of itscapacity of 8,000 orders per day.

The company opened additional hubs in Los Angeles; Orange County; San Diego; Seattle; Chicago; and Portland, Oregon.It instituted a Webvan Rewards program that determined same-day delivery status for customers. Consumers earned one pointfor every $1 that they spent at Webvan and got a 100-point bonus for orders over $100. Only customers achieving gold (1,500 points) and platinum status (2,750 points) qualified for same-day delivery.

In January 2001, the company curtailed plans to expand to East Coast cities, and by July 2001 the company was outof business. The combination of rapid roll-out to 26 markets, heavy investment in the state-of-the-art giant warehouses, the in-house development of software systems, the inability to raise more capital, and the bursting of the dot-com bubble ledthe company to declare bankruptcy. The loss of about $1.2 billion was the largest experienced by any dot-com company.

Online File W3.6 The Rise and Fall of Webvan

Chapter Three: Retailing in Electronic Commerce: Products and Services 7

ONLINE FILE W3.7

GROCERY SHOPPING IN THE PALM OF YOUR HANDSafeway Stores, a grocery chain with $14 billion in sales peryear, has implemented its Easi-Order services using a Palmhandheld device (PDA) to allow customers to point and clicktheir grocery lists and send them to Safeway via phone. Theprogram is part of the company’s “Collect & Go” service.Valued customers are given handheld devices that are loadedwith an application that contains a list of thousands of grocery items, including descriptions and prices. The PDAthat customers are given is a fully functional unit that canbe used for contacts, note taking, e-mail, to-do lists, calendaring and scheduling, and so on.

Customers can review the items and make their grocerylists offline when time permits. (The estimated time savingsis 60 to 90 minutes each week.) When the customer is readyto place the order, the device is plugged into a standardphone socket, and it dials up the Collect & Go server. Theshopping list is downloaded to the server, and next week’ssuggested list along with suggestions and promotions areuploaded to the device. The complete transaction takesabout 60 to 90 seconds. The data collected by Safeway allowthe company to offer outstanding customer service on a verypersonal basis to each individual customer by evaluating theindividual customer’s purchases and buying habits.

The order is picked and packed by the store and set asidefor the customer to pick up at their specified, convenienttime. Items that customers prefer to select for themselves areeasily added to the order at the time of collection by scan-ning the bar code of the additional items with the samehandheld device. Collection is done at dedicated check-out

counters. Some Safeway stores are implementing Easi-Pay terminals, which allow customers to avoid check-out linesaltogether.

In certain areas, delivery to customers’ homes also isavailable. To make delivery possible, Safeway purchasedGroceryworks.com, which developed an innovative order-fulfillment model for the e-grocery industry. Safeway and IBMcollaborated on the Easi-Order project to develop the Java-based server. Safeway was able to contact customers in itsloyalty-card database, and the customer orders are down-loaded to the same database. Easi-Order takes advantage ofthe Internet by making it possible for customers to downloadtheir orders directly to the Collect & Go intranet.

In the future, Safeway’s plan is to have screen phones,digital TV, and speech-processing devices to assist groceryshoppers in making their shopping experiences as easy asverbally telling the program what they want. Safeway andother supermarkets are experimenting with such tools.

Questions1. What are the benefits of Safeway’s Easi-Order and

Collect & Go programs for customers?

2. Why is this considered to be an EC application?

3. What is the role of mobile devices?

4. Compare order fulfillment done at stores versus that forhome delivery.

REFERENCES FOR ONLINE FILE W3.7Business Times Online. “Infinite Possibilities.” Business Times

Online, January 16, 2003. business-times.asia1. com.sg/sub/supplement/story/0,4574,64197,00.html (no longeravailable online).

IBM. “Safeway Stores Puts Grocery Shopping in the Palmof Your Hands with IBM Built, Java-Based Easi-Order

Solution.” IBM Success Story, www-3.ibm.com/software/success/cssdb.nsf/CS/KLKR-4BB3R3?OpenDocument&Site=default (no longer available online);

safeway.com (accessed October 2006).

8 Part 2: Internet Consumer Retailing

With improvements in Internet technologies, the possibility exists for widespread distribution of digital content from busi-nesses to consumers and from consumers to consumers. The rise in importance of Napster and similar Web sites that allowindividuals to find and share music files, movies, and even photos and private documents coincided with the near universalityof computer availability on college campuses and the widespread adoption of MP3 as a music file compression standard.MP3 files are much smaller than earlier file alternatives and allow individuals to download a standard song in far less time.The Napster network did not require the use of a standard Web browser such as Internet Explorer. Nor did the user’s clientmachine actually download the MP3 files from Napster’s servers. Rather, Napster only shared “libraries,” or lists of songs, andthen enabled a peer-to-peer file-sharing environment (see Chapter 8) in which the individual users literally download the musicfrom each others’ machines (called peers). The growth of the “Napster community”—with over 380 million registered users bythe end of 2002 and as many as 1.3 million using the service at the same time—was nothing short of phenomenal(Borland 2002). It is said to have grown faster than any other community in history.

Because of the potential challenge to their revenue sources, the Recording Industry Association of America (RIAA) and fivemajor record labels engaged in a legal battle with Napster, suing it for copyright infringement (see Chapter 17). Napster arguedthat its file sharing never actually published music that could be “pirated” or copied illegally in violation of internationallyrecognized copyright and licensing laws. However, the court ruled that as a manager of file exchanges, Napster must observecopyright. Thus, free file sharing is no longer allowed; Napster was forced to charge customers for use of its file-sharing service.The users of the free services were not happy with the charge and abandoned the service, driving Napster into bankruptcy.

Napster’s assets have been acquired by Roxio Inc. which revived Napster as a for-fee service. In 2004, Napster introducedits for-fee file sharing, making agreements with several universities for deep discounts to students. (For additional information,see napster.com.)

More recently, Napster has launched a new advertisement-supported free music download service in a bid to legally offermusic fans the services they desire. In addition, it is broadening the range of services available, which now include the abilityto legally listen on-demand to a massive catalogue of music from major and independent labels. A music subscription serviceoffers unlimited access to CD-quality music and additional discovery, community, and programming features in an advertising-free environment, and Napster To Go subscribers enjoy unlimited transfer of music to a compatible MP3 player.

In late 2005 Napster 3.5 award-winning subscription service became available. While the new version enhanced audiofidelity and was easier to navigate, it also included song recommendation engine (Billboard.biz 2005).

Despite these initiatives, Napster is struggling financially to some extent, and its future is by no means certain. Napstermay be challenged by a new venture, SpiralFrog, scheduled to launch summer 2007 which has signed both the Universal Groupand EMI to its advertisement-supported music download service. In addition, EMI has agreed to allow the publication of itslyrics online.

However, given the difficulty large branded players such as Napster are experiencing to make these services profitable, thefuture of this type of initiative is uncertain (Marketingshift.com 2006). Furthermore, it would appear that such services willneed to address concerns about copyright infringements if they are to survive and prosper long term.

Online File W3.8 The Napster Experience: Its Rise, Collapse, and Revival

REFERENCES FOR ONLINE FILE W3.8Billboard.biz. “Napster 3.5 Offers Unique Personalization

Features and Higher Fidelity Sound Quality.” November9, 2005. billboard.biz/bbbiz/content_display/industry/e3ida27a19ad4f62ef3db2e374c2a1a3b2d (accessedAugust 2007).

Borland, J. “Napster CEO Touts New Swapping Service.”News.com, January 9, 2002. news.com.com/2100–1023–806886.html (accessed November 2006).

Marketingshift.com. “EMI Leaps to SpiralFrog.” September 6,2006. marketingshift.com/2006/9/emi-leaps-to-spiralfrog.cfm (accessed September 2006).

Chapter Three: Retailing in Electronic Commerce: Products and Services 9

ONLINE FILE W3.9

A BLOOMING SUCCESSJody Yan had been running a steady floral business in down-town Hong Kong since 1987. In 1997, an online auction siteasked Yan to sponsor gifts for auctions, and she agreed.Intrigued by the potential of the Internet, in 1998 she set upan online store named Ambassador.com (ambassador.com.hk).When the orders started to flow in, Yan decided to expandthe business by adding functions such as online payments.Ambassador.com sells customized designer flower baskets,flower bouquets, cakes, and fruit and gourmet gift baskets,all attractively packaged, at an average price of $100 each.Colorful pictures of all products are displayed on the onlinestorefront.

The firm runs a warehouse on the south side of HongKong. In addition to sourcing from local wholesalers, freshflowers are air-shipped from Holland and New Zealand. Yanrealized that it would be very difficult to develop and main-tain in-house software to address the requirements of anonline store. So she hired an IT consulting firm to developthe online store from scratch and also retained them formaintenance, hosting, employee training, and operationalsupport. “There is absolutely no need to build an in-house ITfunction when you can outsource it to reliable experts,” saysYan. To stay ahead of competitors, Yan emphasized goodproduct design. Another strength was her loyal staff, most ofwhom had been with her for over 6 years.

In the first year of operations, the online storeaccounted for about 10 percent of the firm’s revenue. Onlinesales have since doubled every year and accounted for30 percent of the firm’s total revenue of around HK$6 million(US$750,000) in 2002. In 2001, the company closed itsphysical retail shop. The remaining sales channel comprisesmail-order catalogs and the online store. Local telephone

purchase orders are also accepted. Customers receive adetailed picture of the product at the time of delivery via e-mail. Both an in-house team and an outsourced companysupport local deliveries, helping Ambassador.com to copewith seasonal fluctuations. Courier companies carry out allinternational deliveries. This multichannel business model forfloral gift products works very well.

The following success factors helped Ambassador’sonline business blossom:

◗ Yan’s extensive experience in the floral gift productsbusiness

◗ Yan’s analysis that floral gift products are suitable forInternet sales

◗ Back-end operations for the online floral gift shop werealready in place, hence additional costs were marginal

◗ Identification of the online store as part of a multichannelretailing strategy

◗ An initial pilot implementation that resulted in orders◗ Plans and budgets prepared for experimentation◗ The decision to outsource the implementation◗ Hosting, maintenance, and training are done by one vendor◗ Integration of online store functions with other business

models and IT

By 2006, the company had become one of the most suc-cessful online gift shops in Hong Kong.

Questions1. Why was the physical store closed?

2. What are the major success factors of Ambassador.com?

REFERENCES FOR ONLINE FILE W3.9Lee, M. K. O., and C. M. K. Cheung. “Internet Retailing

Adoption by Small-to-Medium Sized Enterprises(SMEs): A Multiple-Case Study.” Information SystemsFrontiers, October–December 2004.

oliver.com (accessed December 2006).

10 Part 2: Internet Consumer Retailing

Circuit City is the second-largest U.S. retailer of consumer electronics (behind BestBuy), operating about 632 superstores locatedacross the United States. Internationally, Circuit City operates more than 950 stores. Prior to the summer of 1999, Circuit City’sWeb site was largely a brochureware site, capable only of selling gift certificates. When Circuit City launched the newcircuitcity.com in 1999, it already had some of the needed EC systems in place—the credit card authorization and inventory-management systems at its brick-and-mortar stores. However, linking the company’s brick-and-mortar systems with the EC systemwas neither cheap nor easy. “It’s safe to say that millions of dollars need to be spent to have a Fortune 500 kind of presence onthe Web in a transactional way,” indicated George Barr, Circuit City’s director of Web development. “It’s just not something youcould do for $100,000” (Calem 2000).

A few features of the Circuitcity.com site (click “services”) deserve special attention. First, through its Click & Learn facility,the site educates customers about the various features and capabilities of different products, cutting through the jargon to help thecustomer understand why these features may be desirable. In this personal and nonthreatening way, customers can gain valuableknowledge to assist them in the purchase decision. (Some consumers find shopping in the traditional brick-and-mortar Circuit Citystore to be intimidating because they do not understand the terms and product features discussed by store personnel.)

Second, at the Web site customers can perform powerful searches on a product database to help find the appropriate modelsto consider. Third, the site offers an extensive amount of generic information about electronics and other products, organized ina very flexible way. This assists buyers as they gather information before a purchase is made, whether or not they eventually buyfrom Circuitcity.com. Visitors can select several product models and compare them by viewing a dynamically created table ofpurchase criteria, displayed side-by-side, with drill-down details if necessary. Recently, CircuitCity has launched a 24/7 new servicefor customers, called firedog (firedog.com). This service is designed to help customers in installing, repairing, and optimizing arange of consumer technology products. Firedog personnel will appear in CircuitCity stores and will be available for home calls,and online technical assistance for PCs is available via the Web site.

Circuit City has engineered the online purchase to be smooth, secure, and seamless. Poor process design will scare offmany customers. It has been reported that in other stores only 17 percent of all online purchase processes are completed,versus over 50 percent for Circuit City. Customers who abandon purchases typically do so because of confusion and complexity,surprises (such as shipping costs), concerns about security and privacy of personal information, system errors, slow transmis-sion speeds, and other factors.

Finally, the site’s order fulfillment method is flexible. The customer is given three choices: (1) receive the purchase viacommon carrier with no sales tax but with a small shipping charge for 3-day delivery, (2) pay a larger shipping charge forovernight delivery, or (3) pick up the item at the nearby brick-and-mortar store and pay sales tax but no shipping, and thushave the item almost immediately. If the customer chooses the self-pickup, the customer prints a confirmation page and takesit to the service desk of the store, along with a picture ID. The customer can pick up a new purchase, such as a DVD player, inunder 2 minutes.

Online File W3.10 Transformation to Click-and-Mortar Operations: Circuit City

REFERENCE FOR ONLINE FILE W3.10Calem, R. E. “Deal Clinchers: How to Get from

Brochureware to Online Business.” Industry Standard,February 14, 2000.