Chapter 9
Online Retail and Services
Copyright 2014 Pearson Education, Inc. Publishing as Prentice Hall
Class Discussion
Blue Nile Sparkles for Your Cleopatra
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 Blue
Nile?
Copyright 2014 Pearson Education, Inc. Publishing as Prentice Hall
Slide 9-2
Whats New in Online Retail,
20132014
Mobile commerce nearly doubles
Rapid growth in social commerce
Online retail still the fastest growing retail channel
Buying online a normal, mainstream experience
Selection of goods increases, includes luxury goods
Informational shopping for big-ticket items expands
Specialty retail sites show rapid growth
Integration of multiple retailing channels
Copyright 2014 Pearson Education, Inc. Publishing as Prentice Hall
Slide 9-3
The Online Retail Sector
Most important theme in online retailing is
effort to integrate online and offline
operations
$16 trillion U.S. economy
U.S. retail market
$11.4 trillion
71% of total gross domestic product (GDP)
Copyright 2014 Pearson Education, Inc. Publishing as Prentice Hall
Slide 9-4
The Retail Industry
7 segments (clothing, durable goods, etc.)
For each, uses of Internet may differ
Information vs. direct purchasing
General merchandisers vs. specialty
retailers
Mail order/telephone order (MOTO)
sector most similar to online retail sector
Sophisticated order entry, delivery, inventory
control systems
Copyright 2014 Pearson Education, Inc. Publishing as Prentice Hall
Slide 9-5
Composition of the U.S. Retail Industry
Figure 9.1, Page 566
SOURCE: Based on data from U.S. Census Bureau, 2012.
Copyright 2014 Pearson Education, Inc. Publishing as Prentice Hall
Slide 9-6
E-commerce Retail: The Vision
Reduced search and transaction costs; customers able
to find lowest prices
Lowered market entry costs, lower operating costs,
higher efficiency
Traditional physical store merchants forced out of
business
Some industries would be disintermediated
Few of these assumptions were correctstructure
of retail marketplace has not been revolutionized
Internet has created new venues for multi-channel
firms and supported a few pure-play merchants
Copyright 2014 Pearson Education, Inc. Publishing as Prentice Hall
Slide 9-7
The Online Retail Sector Today
Smallest segment of retail industry (56%)
Growing at faster rate than offline segments
Revenues have resumed growth
Around 73% of Internet users bought online
in 2013
Primary beneficiaries:
Established offline retailers with online
presence (e.g., Staples)
First mover dot-com companies (e.g., Amazon)
Copyright 2014 Pearson Education, Inc. Publishing as Prentice Hall
Slide 9-8
The Growth of Online Retail in the United States
Figure 9.2, p. 569
SOURCES: Based on data from eMarketer, Inc.,.
Copyright 2014 Pearson Education, Inc. Publishing as Prentice Hall
Slide 9-9
Multi-Channel 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
Web promotions to drive customers to stores
Gift cards usable in any channel
Increasing importance of mobile devices,
social commerce, and tablets
Copyright 2014 Pearson Education, Inc. Publishing as Prentice Hall
Slide 9-10
Analyzing the Viability of
Online Firms
Economic viability:
Ability of firms to survive as profitable business
firms during specified period (i.e., 13 years)
Two business analysis approaches:
Strategic analysis
Focuses on both industry as a whole and firm itself
Financial analysis
How firm is performing
Copyright 2014 Pearson Education, Inc. Publishing as Prentice Hall
Slide 9-11
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
Copyright 2014 Pearson Education, Inc. Publishing as Prentice Hall
Slide 9-12
Financial Analysis Factors
Statements of Operations
Revenues
Cost of sales
Gross margin
Operating expenses
Operating margin
Net margin
Pro forma earningsEBITDA
Balance sheet
Assets, current assets
Liabilities, current liabilities, long-term debt
Working capital
Copyright 2014 Pearson Education, Inc. Publishing as Prentice Hall
Slide 9-13
E-tailing Business Models
Virtual merchant
Amazon
Bricks-and-clicks
Walmart, JCPenney, Sears
Catalog merchant
Lands End, L.L. Bean, Victorias Secret
Manufacturer-direct
Apple, Dell, Sony
Copyright 2014 Pearson Education, Inc. Publishing as Prentice Hall
Slide 9-14
E-commerce in Action: [Link]
Vision:
Business model:
Continued explosive revenue growth, profitable
Strategic analysis/business strategy:
Retail, Third-Party Merchants, and Amazon Web Services
(merchant and developer services)
Financial analysis:
Earths biggest selection, most customer-centric
Maximize sales volume, lower costs and cut prices, acquisitions,
mobile shopping, Kindle
Strategic analysis/competition:
Online and offline general merchandisers, Web services
Copyright 2014 Pearson Education, Inc. Publishing as Prentice Hall
Slide 9-15
E-commerce in Action: [Link]
Strategic analysis/technology:
Largest, most sophisticated collection of online retailing
technologies available
Strategic analysis/social, legal:
Sales tax, patent lawsuits
Future prospects:
In 2013, Amazon registered more than $31 billion in
sales, compared to $26 billion in 2012 for same period
Increased spending on new technology initiatives
Smartphone and Kindle TV set-top box
Video content
New product categories and territories
Copyright 2014 Pearson Education, Inc. Publishing as Prentice Hall
Slide 9-16
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
Established merchants need to create integrated
shopping experience to succeed online
Growth of online specialty merchants ( e.g., Blue
Nile)
Extraordinary growth of social, local, and mobile
e-commerce
Copyright 2014 Pearson Education, Inc. Publishing as Prentice Hall
Slide 9-17
Insight on Technology: Class Discussion
Using the Web to Shop Til You Drop
What do comparison shopping sites offer
consumers?
Why are comparison shopping sites more
successful with hard goods than soft goods?
How is the use of mobile devices impacting
comparison shopping sites?
How may Google Shopping impact shopping
comparison sites?
Copyright 2014 Pearson Education, Inc. Publishing as Prentice Hall
Slide 9-18
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, and so on
Employs 4 out of 5 U.S. workers
75% of economic activity
Copyright 2014 Pearson Education, Inc. Publishing as Prentice Hall
Slide 9-19
Service Industries
Major service industry groups:
Finance
Insurance
Real estate
Travel
Professional serviceslegal, accounting
Business servicesconsulting, advertising, marketing,
and so on
Health services
Educational services
Copyright 2014 Pearson Education, Inc. Publishing as Prentice Hall
Slide 9-20
Service Industries
Two categories
Transaction brokers
Hands-on service providers
Features:
Knowledge- and information-intense
Makes them uniquely suited to e-commerce
applications
Personalization and customization
Level differs depending on type of service
Copyright 2014 Pearson Education, Inc. Publishing as Prentice Hall
Slide 9-21
Online Financial Services
E-commerce has transformed banking and
financial services
Major institutions deploy online services
Online financial consumer behavior
Most online consumers use financial services sites
Check balances
Pay bills
Experienced users move on to more complex financial
services
Number of people using mobile devices for financial
services is surging
Copyright 2014 Pearson Education, Inc. Publishing as Prentice Hall
Slide 9-22
Online Banking and Brokerage
Online banking pioneered by NetBank and
Wingspan; no longer in existence
Established brand-name national banks have
taken substantial lead in market share
Two-thirds of U.S. Internet users use online
banking
Early innovators in online brokerage
(E*Trade) have been displaced by established
brokerages (Fidelity, Schwab)
Copyright 2014 Pearson Education, Inc. Publishing as Prentice Hall
Slide 9-23
Multi-channel vs.
Pure Online Financial Service Firms
Online consumers prefer multi-channel firms
with physical presence
Multi-channel firms
Growing faster than pure online firms
Lower online customer acquisition costs
Pure online firms
Cannot provide all services that require face-to-face
interaction
Copyright 2014 Pearson Education, Inc. Publishing as Prentice Hall
Slide 9-24
Financial Portals and
Account Aggregators
Financial portals
Comparison shopping services, independent financial advice,
financial planning
Revenues from advertising, referrals, subscriptions
Example: Yahoo! Finance, [Link], MSN Money
Account aggregation
Pulls together all of a customers financial data at a
personalized Web site
Privacy concerns: control of personal data, security, and so
on
Example: Yodlee
Copyright 2014 Pearson Education, Inc. Publishing as Prentice Hall
Slide 9-25
Online Mortgage and
Lending Services
Early entrants hoped to simplify and speed
up mortgage value chain
Three kinds of online mortgage vendor today
Established online banks, brokerages, and lending organizations
Traditional mortgage vendors
Pure online mortgage firms
Online mortgage industry has not
transformed process of obtaining mortgage
Complexity of process
Copyright 2014 Pearson Education, Inc. Publishing as Prentice Hall
Slide 9-26
Online Insurance Services
Online term life insurance:
One of few online insurance with lowered search costs,
increased price comparison, lower prices
Commodity
Most insurance not purchased online
Online industry geared more toward
Product information, search
Price discovery
Online quotes
Influencing the offline purchasing decision
Copyright 2014 Pearson Education, Inc. Publishing as Prentice Hall
Slide 9-27
Online Real Estate Services
Early vision: Disintermediation of a complex
industry
However, major impact is influencing of purchases
offline
Impossible to
complete property transaction online
Main services are online property listings, loan
calculators, research and reference material, with
mobile apps increasing
Despite revolution in available information, there
has not been a revolution in the industry value
chain
Copyright 2014 Pearson Education, Inc. Publishing as Prentice Hall
Slide 9-28
Online Travel Services
One of the most successful B2C e-commerce
segments
More travel is booked online than offline
Online travel services revenues in 2013: $137 billion
For consumers: More convenience than traditional
travel agents
For suppliers: A singular, focused customer pool
that can be efficiently reached through onsite
advertising
Copyright 2014 Pearson Education, Inc. Publishing as Prentice Hall
Slide 9-29
Online Travel Services (cont.)
Travel an ideal service/product for Internet
Information-intensive product
Electronic producttravel arrangements can be
accomplished for the most part online
Does not require inventory
Does not require physical offices with multiple
employees
Suppliers are always looking for customers to fill excess
capacity
Does not require an expensive multi-channel presence
Copyright 2014 Pearson Education, Inc. Publishing as Prentice Hall
Slide 9-30
Online Travel Services Revenues
Figure 9.3 , Page 599
SOURCE: Based on data from eMarketer, Inc., 2013d.
Copyright 2014 Pearson Education, Inc. Publishing as Prentice Hall
Slide 9-31
The Online Travel Market
Four major sectors:
Airline tickets
Greatest source of revenue
Two-thirds of all online travel spending
Hotel reservations
19% of travel spending in 2013
Car rentals
9% of travel spending in 2013
Travel packages
2% of travel spending in 2013
Corporate online-booking solutions (COBS)
Copyright 2014 Pearson Education, Inc. Publishing as Prentice Hall
Slide 9-32
Online Travel Industry Dynamics
Intense competition among online providers
Price competition difficult
Industry consolidation
Industry impacted by meta-search engines
Commoditize online travel
Mobile applications are also transforming
industry
Social media content, reviews have an
increasing influence on travel purchases
Copyright 2014 Pearson Education, Inc. Publishing as Prentice Hall
Slide 9-33
Insight on Society: Class Discussion
Phony Reviews
Should there be repercussions to individuals
and/or businesses for posting false reviews of
products or services?
Can phony reviews be recognized and
moderated?
Do you rely more on some types of reviews
or comments on Web sites and blogs over
others?
Copyright 2014 Pearson Education, Inc. Publishing as Prentice Hall
Slide 9-34
Online Career Services
Top sites generate more than $1 billion annually
Two main players: CareerBuilder, Monster
Traditional recruitment tools:
Classified, print ads, career expos, on-campus recruitment, staffing
firms, internal referral programs
Online recruiting
More efficient, cost-effective, reduces total time-to-hire
Enables job hunters to more easily distribute resumes while
conducting job searches
Ideally suited for Web due to information-intense nature of process
Copyright 2014 Pearson Education, Inc. Publishing as Prentice Hall
Slide 9-35
Its Just Information:
The Ideal Web Business?
Recruitment ideally suited for the Web
Information-intense process
Initial match-up doesnt require much personalization
Saves time and money for both job hunters
and employers
One of most important functions:
Ability to establish market prices and terms (online
national marketplace)
Copyright 2014 Pearson Education, Inc. Publishing as Prentice Hall
Slide 9-36
Online Recruitment Industry Trends
Consolidation
Diversification: Niche employment sites
Localization:
Local vs. national, Craigslist
Job search engines/aggregators:
Scraping listings
Social networking:
LinkedIn; Facebook apps
Mobile Web sites and apps
Copyright 2014 Pearson Education, Inc. Publishing as Prentice Hall
Slide 9-37
