Lecture E-commerce (7/e): Chapter 9 - Kenneth C. Laudon, Carol Guercio Traver

E­commerce: Business. Technology. 
Society

E­commerce   

business. technology. society.

seventh edition

Kenneth C.
Laudon
Carol Guercio
Traver
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Pearson Education, Inc.
Copyright © 2011 Pearson Education, Inc.


Chapter 9: Online Retail and Services

Chapter 9
Online Retail and Services

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Slide 9­2

Blue Nile Sparkles For Your Cleopatra
Class 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
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Blue Nile?


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Slide 9­3

Major Trends in Online Retail, 
2010­2011


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

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 Informational shopping for big-ticket items
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Slide 9­4


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:
 Services:

61 %

 Nondurable
 Durable



goods: 29 %

goods: 10 %

“Goods” vs. “services” ambiguity

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Slide 9­5


The Retail Industry
8

segments (clothing, durable goods, etc.)

 For

each, uses of Internet may differ

 Information

 General

vs. direct purchasing

merchandisers vs. specialty

retailers
 Mail

order/telephone order (MOTO) sector
most similar to online retail sector

 Sophisticated

order entry, delivery, inventory
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control systems
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Slide 9­6


Composition of the U.S. Retail Industry

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Figure 9.1, p. 579

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

Slide 9­7


E­commerce Retail: The Vision



1.

Reduced search and transaction costs; customers

able to find lowest prices

2.

Lowered market entry costs, lower operating costs,
higher efficiency

3.

Traditional physical store merchants forced out of
business

4.

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
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Slide 9­8



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:
 Established offline retailers with online
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presence (e.g. Staples)
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Slide 9­9


Online Retail and B2C E­commerce is Alive and 
Well

SOURCES:
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Figure 9.2, p.582
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Based on data from eMarketer, Inc., 2010a; authors’
estimates.
Slide 9­10


Multi­Channel Integration

 Integrating

Web operations with traditional
physical store operations
 Provide

integrated shopping experience
 Leverage value of physical store

 Types

of integration

 Online

order, in-store pickup
 In-store kiosk or clerk Web order, home delivery
 Web promotions to drive customers to stores
 Gift cards usable in any channel
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Slide 9­11


Analyzing the Viability of
Online Firms
 Economic

viability:

 Ability

of firms to survive as profitable
business firms during specified period (i.e. 1-3
years)

 Two

business analysis approaches:

Strategic
 Focuses

analysis
on both industry as a whole and firm itself

Financial

 Copyright © 2011 analysis
 How firm is performing
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Slide 9­12


Strategic Analysis Factors
 Key








industry strategic factors

Barriers to entry
Power of suppliers
Power of customers
Existence of substitute products
Industry value chain
Nature of intra-industry competition

 Firm-specific






factors

Firm value chain
Core competencies
Synergies
Technology
Social and legal challenges

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Slide 9­13


Financial Analysis  Factors
 Statements

of Operations

 Revenues
 Cost

of sales
 Gross margin
 Operating expenses
 Operating margin
 Net margin


Pro forma earnings

 Balance

sheet

 Assets,

current assets
 Liabilities, current liabilities and long-term debt

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 Working capital
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Slide 9­14


E­tailing Business Models
1.

Virtual merchant


1.

Bricks-and-clicks


1.

Wal-Mart, J.C. Penney, Sears

Catalog merchant


1.

Amazon

Lands’ End, L.L. Bean, Victoria’s Secret

Manufacturer-direct


Dell

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Slide 9­15


E­commerce in Action: Amazon.com
 Vision:


Earth’s biggest selection, most customer-centric

 Business


Amazon Retail, Third Party Merchants, and Amazon Web Services
(merchant and developer services)

 Financial


analysis:

Greatly improved, profitable; still heavy long-term debt

 Strategic


model:

analysis/business strategy:

Maximize sales volume, cut prices

 Strategic

analysis/competition:

 Online and offline general merchandisers
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Slide 9­16


E­commerce in Action: Amazon.com


Strategic analysis/technology:
 Largest,

most sophisticated collection of online
retailing technologies available



Strategic analysis/social, legal:
 Antitrust,

sales tax, patent lawsuits
 Toys“R”Us suit settlement, State of New York lawsuits


Future prospects:
 In

2009, net sales grew 28%, and significant gains
thus far in 2010
 Ranks among top five in customer service, speed,
accuracy
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 However, net margins still much narrower than WalPearson Education, Inc.
Slide 9­17


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:
 Specialty

merchants with high-end goods, e.g. Blue
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Nile
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Slide 9­18


Insight on Technology

Using the Web to Shop ’Till You Drop
Class 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
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help consumers?


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Slide 9­19


The Service Sector: Offline and Online
 Service

sector:

 Largest

and most rapidly expanding part of
economies of advanced industrial nations

 Concerned

with performing tasks in and
around households, business firms, and
institutions


Includes doctors, lawyers, accountants, business
consultants, etc.

 76%

of U.S. labor force - 108 million

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 58% of GDP - $7.7 trillion
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Slide 9­20


Service Industries
 Major

service industry groups:

 Finance
 Insurance
 Real

estate
 Travel
 Professional services – legal, accounting
 Business services – consulting,
advertising, marketing, etc.
 Health services
 Educational services

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Slide 9­21


Service Industries
 Two

categories

 Transaction

brokers
 Hands-on service providers
 Features:
 Knowledge-

and information-intense

 Makes

them uniquely suited to e-commerce
applications

 Amount

of personalization and customization
required differs depending on type of service

 e.g. medical services vs. financial services
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Slide 9­22


Online Financial Services
 Example

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

 Brokerage
4

industry transformed

of 5 households use online banking

 Effects

less powerful in insurance, real

estate
 Multi-channel

established financial
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services firms continue to show strong
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Slide 9­23


Financial Service Industry Trends
 Two

important global trends

Industry

consolidation

 Financial

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

Movement

toward integrated financial

services
 Financial

supermarket model

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Slide 9­24


Industry Consolidation and Integrated 
Financial Services

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Figure 9.3, Page 606
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Slide 9­25