Internet RetailingE-retailers vs. bricksSlide 3Slide 4Slide 5Slide 6Slide 7Internet Retailing StrategiesSlide 9Slide 10Slide 11Results of chatSlide 13Top 10 E-tailers 2001(Revenue)Question #1Question #2Question #3Question #4Question #5Question #6Question #7Other barriersTry-out/”experience”Slide 24Slide 25Question #8The Fit IssueQuestion #9Question #10Question #11Question #12Question #13What has Amazon done right?HED 460Internet RetailingStock prices downDemands for government regulation/taxation growingMargins are thinSupplier relationships testierHED 460E-retailers vs. bricksRevenue % 100%COGS % 87%GM% 13%Mkt./Adv. 24%Other op. exp. 23%Tot. Op. exp. 47%Op. Income -33%Revenue % 100%COGS 73%GM% 27%Mkt./Adv. 4%Other op. exp. 18%Tot. Op. exp. 22%Op. Income 4.5%HED 460Internet RetailingInternet makes everyone a retailerInternet service providers (ISP’s)Suppliers as retailersChannel conflictWal*mart and Home Depot More competition but core retail skills give retailers an edgeHED 460Internet RetailingMarket discipline is kingEtailers must be customer-centricBusiness to consumer market modelsIndividual product auctions (ebay.com)“name your price” offers (priceline)Buyer aggregation (mercata.com)HED 460Internet RetailingNew technology influencesWirelessCreates new channels of Internet accessNew applications in the home and on the road (GPS systems)Networked homeTV, refrigerator as control centersHED 460Internet RetailingThe fall out has startedEtailers have closed virtual doorsetoys, pets.com, kozmo.com, webvanSome have partnered to increase portfolioAmazon/WaldenBooks, eBay/Paypal, FTD/Flowers DirectSome have restructuredSome were close to going out of businessHED 460Internet RetailingSome categories are saturatedPetsPetopia.com, Petstore,com, Petwarehouse.com, PETsMART.comSporting goodsHED 460Internet Retailing StrategiesReducing marketing expendituresUsing cheaper techniques like emailDramatic decreases in average online customer acquisition costsQ4’99 - $71Q1’00 - $45Q2’00 - $40Q3’00 - $20HED 460Internet Retailing StrategiesRaising product pricesBeing less promotionalLowering/eliminating shipping charges*HED 460Internet Retailing StrategiesDestination siteCategory focus to focus on all things related to the categoryRelevant contentProduct reviewsAdvice columnsCelebrity interviewsNewsHED 460Internet Retailing StrategiesDestination site, cont.Building community on-line – interactionMessage boardsChat roomsLands’ End, CarsDirect, TechnoScoutHED 460Results of chatBest for high-price, high-margin productsUsed to up-sell, cross-sell, convertAve. order increased by 6% at Lands’ EndAve. order increased from $135 to $170 for TechnoScout (3.5% use chat feature)Conversion incr. from 2.2% to 3.1% from 2000-2001Abandoned shopping carts decreased from 53% to 47%HED 460Internet Retailing StrategiesMulti-channel retailersExperience is paying offOnly 2 of top 10 etailing sites 2001 are traditional “pure play”Pure-play e-tailers are forming alliances with store-based or catalogsHED 460Top 10 E-tailers 2001(Revenue)Amazon.com*Office DepotStaplesGatewayCostcoBarnesandNobleBuy.com*QVC.comThe Spiegel GroupJC PenneyHED 460Question #1What percentage of U.S. households have a computer at home?66%HED 460Question #2What percentage of U.S. households have a Internet access at home?63%Gap continues to narrowHED 460Question #3What country has the highest percentage of Internet users?Finland – 58%Sweden – 44%Canada – 41%USA – 37%HED 460Question #4What is it cost to service online customers?Phone - $33.00E-mail - $9.99Live Chat - $7.80Self-service - $1.17Forrester ResearchHED 460Question #5What is the profile of online shoppers? 39% Upmarket66% are younger/single and younger/parents53% women shop to save time (41% men)56% men shop to save money (40% women)HED 460Question #6What are the 3 attributes of favorite web sites?Good product selectionCompetitive pricesEase of useHED 460Question #7What is the greatest barrier to online purchasing?Fear factor - Credit card safety (69%), then privacy (61%)HED 460Other barriersOther fearsReturnsCustomer service questions answeredFeel factorFeel, see, try out/onPrefer shopping at storesHED 460Try-out/”experience”Zanybrainy.com – selected toys3D interaction to zoom in and out, “use” products (sharperimage.com)My model (Lands’ End)HED 460HED 460Other barriersFulfillment factorNot willing to pay shipping/handlingDon’t want to wait for productsFrustration factorDifficult to shop onlineCompleting transaction takes too longHED 460Question #8What is the greatest barrier to online purchasing for clothing?Inability to try on clothes for fit before purchase (81%)Unable to feel material quality (45%)Concern about ease of return (44%)HED 460The Fit IssueVirtual models (landsend.com and jcpenney.com)Fit guides and comparisons ([email protected] and eddiebauer.com)HED 460Question #9What is the cause of e-shoppers abandoning their shopping carts?Excessive shipping costs (1/2)47% abandonment ratePresent shipping costs up frontHED 460Question #10What is the most frequently purchased online category?Information-intensive (for sales volume)Digital cameras/camcorders, PC, SoftwareCommodities (for conversion rates)Books, CD’s, women’s hosieryHED 460Question #11Is there a link between # channels shopped and spend per shopper?Sears data2 channels, 2x as likely to shop store and spend 2x more3 channels, 3x as likely to shop store and spend 3x more30-40% online purch = store pickup (20% buy more in the store when pickup)HED 460Question #12How many Internet users are purchasing online?55% (77% browsed/shopped)Vs. 51% and (75%) last yearHED 460Question #13What is the main advantage of being a pure-play e-tailer?Focused and nimbleWhat is the main advantage of being a multichannel e-tailer?Brand nameSynergiesHED 460What has Amazon done right?Amazon simplifies shoppingEquity built with consumers is saving Amazon with investorsSelection,