Lecture E-commerce: Business, technology, society (3/e): Chapter 10 - Kenneth C. Laudon, Carol Guercio Traver
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E-commerce
business. technology. society.
Third Edition
Kenneth C. Laudon
Carol Guercio Traver
Copyright © 2006 Pearson Education, Inc.
Slide 10-1
Chapter 10
Retailing on the Web
Copyright © 2006 Pearson Education, Inc.
Slide 10-2
Blue Nile Sparkles For Your Cleopatra
Class Discussion
Why is selling (or buying) diamonds over the
Internet so difficult?
How has BlueNile built its supply chain to keep
costs low?
How has BlueNile reduced consumer anxiety
over online diamond purchases?
What are some vulnerabilities facing BlueNile?
Would you buy a $5,000 engagement ring at
BlueNile?
Copyright © 2006 Pearson Education, Inc.
Slide 10-3
Major Trends in Online Retail, 2006
See also Table 10.1, Page 575.
Online retail increasingly profitable
Buying online becomes normal, mainstream experience
Selection of goods online increases, including customized goods
Average annual amount of purchases increases
Specialty retail sites show most rapid growth
Increased emphasis on improved shopping experience
Increased use of interactive multimedia marketing
Retail intermediaries strengthen in many areas
Retailers increasingly efficient at integrating multiple channels
Customized goods, especially in apparel, become financially
successful, and begin to spread to many sites beyond specialty
retailers.
Online shopping becomes more multi-seasonal
Most online shopping occurs at work, evenings at home
Copyright © 2006 Pearson Education, Inc.
Slide 10-4
The Retail Sector
Most important theme in online retailing is effort to
integrate online and offline operations
U.S. retail market accounts for over $7.7 trillion of
total GDP (2/3rds of all economic activity)
Retail industry can be divided in segments, each of
which offers opportunities for online retail
Biggest opportunities for online retail sales: Those
segments that sell small ticket items (specialty stores,
general merchandisers, mail-order catalogs,
groceries)
Mail order/telephone order (MOTO) sector most
similar to online retail sector
Copyright © 2006 Pearson Education, Inc.
Slide 10-5
Composition of the U.S. Retail Industry
Figure 10.1, Page 576
SOURCE: Based on data from U.S. Census Bureau, 2005.
Copyright © 2006 Pearson Education, Inc.
Slide 10-6
Online Retailing: The Vision
Greatly reduced search costs on the Internet would
encourage consumers to abandon traditional
marketplaces in order to find lower prices for goods
Market entry costs would be much lower than those
for physical storefronts, and online merchants would
be more efficient than offline competitors
Traditional offline physical store merchants would be
forced out of business
Some industries would become disintermediated as
manufacturers built direct relationship with consumer
Ultimately, few of the above assumptions proved to
be correct, and structure of retail marketplace in the
U.S. has not be revolutionized
Copyright © 2006 Pearson Education, Inc.
Slide 10-7
The Online Retail Sector Today
Online retailing segment, although smallest
segment of retail industry, is growing at
exceptionally fast rate
Online retail revenues: $85 billion, 115 million
consumers estimated for 2005
Primary beneficiaries of growing consumer
support: Established offline retailers with an
online presence
Copyright © 2006 Pearson Education, Inc.
Slide 10-8
Online Retail and B2C E-commerce is
Alive and Well
Figure 10.3, Page 581
SOURCE: Based on data from U.S Department of Commerce, 2005; eMarketer, Inc, 2005a;
Shop.org and Forrester Research, 2005, authors’ estimates.
Copyright © 2006 Pearson Education, Inc.
Slide 10-9
Insight on Business: Merlot by Mail
Class Discussion
Why is eVineyard one of the few online
surviving wine retailers?
What was the key to eVineyard’s success?
How will changes in state laws open up
online wine sales?
How did the Supreme Court decision effect
wine retailing and wineries in the United
States?
Copyright © 2006 Pearson Education, Inc.
Slide 10-10
Analyzing the Viability of Online Firms:
Strategic Analysis
Strategic analysis of economic viability of a firm
focuses on both industry as a whole and firm
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
Copyright © 2006 Pearson Education, Inc.
Slide 10-11
Analyzing the Viability of Online Firms:
Strategic Analysis (cont’d)
Strategic factors that pertain to firm include:
Firm value chain
Core competencies
Synergies
Technology
Social and legal challenges
Copyright © 2006 Pearson Education, Inc.
Slide 10-12
Analyzing the Viability of Online Firms:
Financial Analysis
Financial analysis helps us understand how a firm is
performing
Includes two main parts: Statement of Operations
and Balance Sheet
Statement of Operations: Tells us how much
income or loss a firm is achieving based on
current sales and costs
Balance sheet: Provides a financial snapshot of a
company’s assets and liabilities
Copyright © 2006 Pearson Education, Inc.
Slide 10-13
Analyzing the Viability of Online Firms:
Financial Analysis (cont’d)
Factors to look for when assessing Statements of Operations
Revenues: growing and at what rate?
Cost of sales: compared to revenues
Gross margin (gross profit divided by net sales):
increasing or decreasing?
Operating expenses: What are they; increasing or
decreasing?
Operating margin: Indication of company’s ability to turn
sales into pre-tax profit after operating expenses are
deducted
Net margin (net income or loss divided by net sales or
revenue): increasing or decreasing?
Copyright © 2006 Pearson Education, Inc.
Slide 10-14
Analyzing the Viability of Online Firms:
Financial Analysis (cont’d)
Factors to look for when assessing a Balance
Sheet:
Current assets
Current liabilities
Ratio of current assets to liabilities
(working capital)
Long-term debt
Copyright © 2006 Pearson Education, Inc.
Slide 10-15
E-tailing Business Models
Four main types of online retail business
models:
Virtual merchant
Bricks-and-clicks
Catalog merchant
Manufacturer direct
Copyright © 2006 Pearson Education, Inc.
Slide 10-16
Virtual Merchants
Single channel Web firms that generate
almost all revenues from online sales
Example: Amazon.com
Copyright © 2006 Pearson Education, Inc.
Slide 10-17
E-commerce in Action: Amazon.com
Vision: Earth’s biggest selection, most customercentric
Business Model: Virtual merchant that sells
merchandise owned by Amazon, online storefronts
for other merchants, merchandise owned by
individuals; e-commerce services
Financial Analysis: Greatly improved overall
operational position, but not yet consistently
profitable
Copyright © 2006 Pearson Education, Inc.
Slide 10-18
E-commerce in Action: Amazon.com
Strategic Analysis: Business strategy: Maximize
revenue while cutting costs
Strategic Analysis: Competition: General
merchandisers who are both offline and/or online
Strategic Analysis: Technology: Largest, most
sophisticated collection of online retailing
technologies available
Strategic Analysis: Social, Legal: Securities, anti-trust
lawsuits
Future Prospects: Long-term profitability still
uncertain
Copyright © 2006 Pearson Education, Inc.
Slide 10-19
Multi-channel Merchants: Bricks and
Clicks
Companies that have a network of physical
stores as primary retail channel, but also
online offerings
Examples: Wal-Mart, J.C. Penney, Sears
Copyright © 2006 Pearson Education, Inc.
Slide 10-20
Catalog Merchants
Established companies that have a
national offline catalog operation as largest
retail channel, but also have online
capabilities
Examples: Lands’ End, L.L. Bean, Eddie
Bauer, Victoria’s Secret, Lillian Vernon
Copyright © 2006 Pearson Education, Inc.
Slide 10-21
Manufacturer-Direct
Single or multi-channel manufacturers who
sell directly online to consumers without
intervention of retailers
Example: Dell
Copyright © 2006 Pearson Education, Inc.
Slide 10-22
Insight on Society: Internet Taxation:
The Tax Man is Coming
Class Discussion
Why should online retailers collect state sales
taxes?
What is the Streamlined Sales Tax Project
and how will it potentially effect the collection
of online sales taxes?
Why do some major online stores like WalMart collect sales taxes?
Copyright © 2006 Pearson Education, Inc.
Slide 10-23
Distribution of Online Retail Sales by Type of
Merchant
Figure 10.3, Page 603
SOURCE: Based on data from Internet Retailer, 2005.
Copyright © 2006 Pearson Education, Inc.
Slide 10-24
Common Themes in Online
Retailing
Online retail fastest growing channel, has fastest
growing consumer base, growing penetration rate
across many categories of goods
Many online retail firms have begun to raise prices
Disintermediation has not occurred, and most
manufacturers use Web primarily as an informational
resource
Most significant online growth has been that of offline
giants who are focusing on extending brand to online
channel
Second area of rapid growth: specialty merchants
Copyright © 2006 Pearson Education, Inc.
Slide 10-25
