Amazon.com began in 1995 selling only books online and has since expanded to become a leading online retailer. It has continually improved the customer experience through expanding product selection, adding services, improving order fulfillment, and recognizing the importance of customer data. Amazon uses technology to offer specialty stores, expand product selection, and provide additional services. It has become a major online retailer through strategic expansion, partnerships, and focus on the customer experience.

1. Chapter 2
Retailing in Electronic Commerce

2. Amazon.com: The King of
E-Tailing
• The opportunity
– July 1995, e-tailing pioneer Amazon.com, offered
books via an electronic catalog from its Web site
(amazon.com)
– The company has continually enhanced its business
models and electronic store by:
•
•
•
•
expanding product selection
improving the customer’s experience
adding services and alliances
recognizing the importance of order fulfillment and
warehousing

3. Amazon.com: The King of
E-Tailing (cont.)
• Technology used
– Amazon.com has expanded in a variety of directions:
• offers specialty stores (professional and technical store)
• expands its editorial content through partnerships with
experts in certain fields
• increases product selection with the (used and out-ofprint titles)
• expands its offerings beyond books (June 2002 became
an authorized dealer of Sony Corp. selling Sony
products online)
• today: a diversified retailer of products and services

4. Amazon.com: The King of
E-Tailing (cont.)
– Key features of the Amazon.com superstore
are:
• easy browsing, searching, and ordering
• useful product information, reviews,
recommendations, and personalization
• broad selection
• low prices
• secure payment systems
• efficient order fulfillment
• personalization

5. Amazon.com: The King of
E-Tailing (cont.)
– Enjoyable features:
• “Gift Ideas” section features seasonally
appropriate gift ideas and services
• “Community” section provides product
information and recommendations shared by
customers
• “E-Cards” section, free animated electronic
greeting

6. Amazon.com: The King of
E-Tailing (cont.)
– Marketplace services:
• hosts and operates auctions
• zShops service hosts electronic storefronts for
a monthly fee
• allowing small businesses the opportunity to
have customized storefronts supported by the
richness of Amazon.com’s order-fulfillment
processing

7. Amazon.com: The King of
E-Tailing (cont.)
– Amazon.com is recognized as an online
leader in CRM
• informative marketing front ends
• one-to-one advertisements
• free posting of restaurant menus from
thousands of restaurants
• “Welcome back, Sarah Shopper” with
recommendations of new books from the
customers preferred genre based on
previous purchases

8. Amazon.com: The King of
E-Tailing (cont.)
• Sends purchase recommendations via
e-mail to cultivate repeat buyers
• Efficient search engine and other shopping aids
• Customers can personalize their accounts and
manage orders online with the patented “OneClick” order feature including an electronic wallet

9. Amazon.com: The King of
E-Tailing (cont.)
– In 1997, Amazon.com started an extensive
affiliates program
• by 2002, the company had more than 500,000
partners that refer customers to Amazon.com
• Amazon pays a 3 to 5% commission on any resulting
sale
• alliances with major “trusted partners” provide
knowledgeable entry into new markets
• Carsdirect.com allows it to sell cars online
• Drugstore.com connects to health and beauty aids
• AT&T, Nextel and others suggest service plans for
wireless phones

10. Amazon.com: The King of
E-Tailing (cont.)
– September 2001 Amazon signed an
agreement with Borders Group Inc
• allows Amazon.com’s users to pick up books,
CDs, and other merchandise at Borders’
physical bookstores
– It is becoming a Web fulfillment contractor for
national chains such as:
• Target
• Circuit City

11. Amazon.com: The King of
E-Tailing (cont.)
• The Results
– Is the number one e-tailer since 2001
generated $3.12 billion
– Is becoming very successful in reducing
its costs and increasing its profitability
– Annual sales for Amazon.com have
trended upward (over $5 billion in 2003)

12. Amazon.com: The King of
E-Tailing (cont.)
– $15.7 million in 1996 to $600 million in 1998 to about
$4 billion by 2002
– In 2003 the site offers over 17 million book, music,
and DVD/video titles to some 20 million customers
– Offers several features for international customers
– In January 2002, Amazon.com declared its first ever
profit—for the 2001 fourth quarter

13. Amazon.com: The King of
E-Tailing (cont.)
• What can we learn…
– demonstrates the evolution of e-tailing
– some of the problems encountered by
e-tailers
– solutions employed by Amazon.com to
expand its business
– the opportunities for e-tailing

14. Internet Marketing and Electronic
Retailing (E-Tailing)
• Overview of e-tailing
– Electronic retailing (e-tailing): Retailing
conducted online, over the Internet
– E-tailers: Those who conduct retail business
over the Internet

15. Internet Marketing and
E-Tailing (cont.)
• Size and growth of the B2C market
– number of U.S. online buyers from 53.2% of all
Internet users in 2001 to 6% by 2004 (90 million
people purchasing online)
– U. S. revenues from online B2C buying predicted to
go from $73 billion in 2001 to $190 billion in 2004
– May 2002 sales of $9.8 billion in the first quarter of
2002 (up 19.3 percent from the first quarter of 2001)
– annual 2002 sales estimated to be over $40 billion—
1.4 % of total retail sales, up from 1.1 percent in 2001
– average online shopper spent over $300 per quarter

16. Internet Marketing and
E-Tailing (cont.)
• What sells best on the
Internet?
– Computer hardware
and software
– Consumer electronics
– Sporting goods
– Office supplies
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–
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Books and music
Toys
Health and beauty
Entertainment
Apparel
Cars
Services
Others

17. Internet Marketing and
E-Tailing (cont.)
• Characteristics of successful e-tailing
– high brand recognition (Lands’ End)
– guarantee provided by highly reliable or well-known
vendors (Dell)
– digitized format (software)
– relatively inexpensive items (office supplies)
– frequently purchased items (groceries)
– commodities with standard specifications (books),
physical inspection unimportant
– well-known packaged items that cannot be opened
even in a traditional store (vitamins)

18. Electronic Marketplaces
• Markets play a central
role in the economy
facilitating the
exchange of:
–
–
–
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information
goods
services
payments
• Markets create
economic value for:
– buyers
– sellers
– market
intermediaries
– society at large

19. Electronic Marketplaces (cont.)
•
Three main functions of markets
1. matching buyers and sellers
2. facilitating the exchange of information, goods,
services, and payments associated with market
transactions
3. providing an institutional infrastructure, such as
a legal and regulatory framework, that enables
the efficient functioning of the market

20. Electronic Marketplaces (cont.)
• In recent years markets have seen a
dramatic increase in the use of IT—EC
has:
– increased market efficiencies by
expediting or improving functions
– been able to significantly decrease the
cost of executing these functions

21. Marketspace
• Marketspace: A marketplace in which
sellers and buyers exchange goods and
services for money (or for other goods and
services), but do so electronically

22. Marketspace Components
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•
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•
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Customers
Sellers
Products
Infrastructure
Front end
• Back end
• Intermediaries
• Other business
partners
• Support services

23. Marketspace Components (cont.)
• Digital products:
Goods that can be
transformed to digital
format and delivered
over the Internet
• Front end: The
portion of an
e-seller’s business
processes through
which customers
interact, including
the seller’s portal,
electronic catalogs,
a shopping cart, a
search engine, and
a payment gateway

24. Marketspace Components (cont.)
• Back end: The activities
that support online ordertaking. It includes
fulfillment, inventory
management, purchasing
from suppliers, payment
processing, packaging,
and delivery
• Intermediary: A
third party that
operates
between sellers
and buyers

25. Types of Electronic Markets
• Electronic storefront: A
single or company Web site
where products and services
are sold
• Mechanisms necessary for
conducting the sale:
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–
–
–
–
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electronic catalogs
search engine
e-auction facilities
payment gateway
shipment court
customer services

26. Types of Electronic Markets (cont.)
• e-mall (online mall): An online
shopping center where many stores
are located
– some are merely directories
– some provide shared services (e.g.,
choicemall.com).
– some are actually large click-and-mortar
retailers
– some are virtual retailers (e.g., buy.com)

27. Types of Electronic Markets (cont.)
• Types of stores and malls
– General stores/malls
– Specialized stores/malls
– Regional versus global stores
– Pure online organizations versus click-andmortar stores

28. Types of Electronic Markets (cont.)
• e-marketplace:
An online market, usually B2B, in which buyers and
sellers exchange goods or services; the three types
of e-marketplaces are private, public, and consortia
• Private e-marketplaces:
Online markets owned by a single company; can be
either sell-side or buyside marketplaces
• Sell-side e-marketplace:
A private e-market in which a company sells either
standard or customized products to qualified
companies

29. Types of Electronic Markets (cont.)
• Buy-side e-marketplace:
A private e-market in which a company makes
purchases from invited suppliers
• Public e-marketplaces:
B2B markets, usually owned and/or managed by an
independent third party, that include many sellers
and many buyers; also known as exchanges
• Consortia:
E-marketplaces owned by a small group of large
vendors, usually in a single industry

30. Information Portals
• Information portal: a single point of
access through a Web browser to
business information inside and/or
outside an organization

31. Information Portals (cont.)
•
Six types of portals
1.
2.
3.
4.
5.
Commercial (public) portals
Corporate portals
Publishing portals
Personal portals
Mobile portals: a portal accessible via a mobile
device
6. Voice portals: a portal accessed by telephone or cell
phone

32. E-Tailing Business Models of
Electronic Marketing
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Direct Marketing Versus Indirect Marketing
Full Cybermarketing Versus Partial Cybermarketing
Electronic Distributor Versus Electronic Broker
Electronic Store Versus Electronic Shopping Mall
Generalized E-mall/Store Versus Specialized Emall/Store
• Proactive Versus Reactive Strategic Posture Toward
Cybermarketing
• Global Versus Regional Marketing
• Sales Versus Customer Service

33. E-Tailing Business Models (cont.)

34. E-Tailing Business Models (cont.)
• Direct marketing by mail order companies
direct marketing: broadly, marketing that
takes place without intermediaries between
manufacturers and buyers; in the context of
this book, marketing done online between any
seller and buyer

35. E-Tailing Business Models (cont.)
• Proactive and Full Direct Marketing: The Dell
Computer Case
– Founding Sprit of Dell: Telemarketing major business
strategy since the birth of company
– Revenue via the Internet
– Dell’s Products on the Internet
– Dell’s Critical Success Factors
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•
•
•
Advanced Web application
Price competitiveness owing to mass customization
Database marketing and customer intimacy
Global reach and value-added services at a single contact
point
• High reliability and reputation
• Deliver support

36. E-Tailing Business Models
• Reactive and Partial Direct Marketing:
Ford Case
• Online Customer Service:
– Sellers understand their markets better
because of the direct connection to
consumers, and consumers gain greater
information about the products through direct
connection to the manufacturers
– Example: Dell Computers—build-to-order
approach of customization

37. E-Tailing Business Models (cont.)
• Retailing in online malls
– Referring directories
• directory organized by product type
• catalog listings or banner ads at the mall
site advertise the products or stores
– Malls with shared services
• consumer can find the product, order and
pay for it, and arrange for shipment
• hosting mall provides these services, but
they are executed by each store
independently

38. Problems with E-Tailing and
Lessons Learned
• Reasons retailers give for not going online
include:
– product is not appropriate for Web sales
– lack of significant opportunity
– too expensive
– technology not ready
– online sales conflict with core business

39. Electronic intermediaries
• Pure e-mall: implies that company’s retailing
business exists only on the Internet. Pure e-mall
can be classified into two categories electronic
distributors or electronic brokers (e-brokers).
• In contrast a company with Partial e-mall strategy
regards the e-mall as one distribution business.

40. Reactive Electronic Department Stores
• JCPenney: The JCPenney Case
• Electronic Department Stores Wordwide:
Wal-Mart
Regional Shopping Service
• Peapod Case: Peapod inc is the leading
Internet supermarket, providing consumers with
broad product choices and local delivery
services.

41. Procedure for Internet Shopping:
The Consumer’s Perspective
1. Preliminary requirement determination
2. Search for the available items
3. Compare the candidate items with multiple
perspectives
4. Place an order
5. Play for the goods
6. Reactive the delivered items and inspect their
quality
7. Contact the vender to get after-service and
support, or return the goods if disappointed

42. Aiding Comparison Shopping
• Search of hypertext files by agent:
Bargainfinder (bf.cstar.ac.com.bf) .
• Search in Web-Based database: Human and
Software agents sharing information (
www.compare.net)
• Comparable item retrieval and tabular
comparison
• Comparison of multiple items from multiple
malls
• Comparison as multiple-criteria decision
making

43. The Impacts of EC on Traditional
Retailing Systems
• Industry structure
– Consumers are aware of competitor’s prices through
searches; intermediaries become obsolete
– Digitization of more products; reduction in shipping
costs
– Seller and customer activities converge in 1 place
•
•
•
•
•
Marketing
Order processing
Distribution
Payments
Product development

44. The Impacts of EC on Traditional
Retailing Systems (cont.)
• Disintermediation: The removal of
organizations or business process layers
responsible for certain intermediary steps in a
given supply chain
• Reintermediation: The process whereby
intermediaries (either new ones or those that
had been disintermediated) take on new
intermediary roles

45. The Impacts of EC on Traditional
Retailing Systems (cont.)
– Disintermediation and reintermediation
• Disintermediaries: match and provide information
• Reintermediatiaries: provide value-added services
(consulting)
Impact on Manufacturer’s Distribution’
Strategy
• Manufacturer’s monopolisite Internet-Based
Distribution.
• Coexistence with Dealers
• Regionally mixed strategy.
• Mass customization for make-to-order.
• Powerful suppliers

46. Impacts on Trading Processes
and Intermediaries (cont.)
• Potential Winners and Losers in EC
– Winners
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•
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Internet access providers
Diversified portal service providers
EC software companies
Proprietary network owners
Others

47. Managerial Issues
1. Should we grab a first-mover advantage or
wait and learn?
2. What should our strategic position be?
3. Are we financially viable?
4. Should we recruit out of town?
5. Are there international legal issues regarding
online recruiting?
6. Do we have ethics and privacy guidelines?
7. How will intermediaries act in cyberspace?
8. Should we set up alliances?