Retail Book Chap03

CHAPTER 3: MULTICHANNEL RETAILING INSTRUCTOR NOTES

ANNOTATED OUTLINE I. Retail Channels for Interacting with Customers

See PPT 3-3, 3-4, 3-5

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Retailers are categorized by their offering (food, general merchandise or services) and then by the channel they use to reach their customers whether store- or nonstore-based (electronic, catalog/direct mail, direct selling, TV home shopping, and vending machine). However, most retail firms are now using more than one channel to reach their customers.

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A multi-channel retailer is a retailer that sells merchandise and/or services through more than one channel. By using a combination of channels, retailers can exploit the unique benefits provided by each channel. See PPT 3-6

A. Store Channel •

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Ask students to provide examples of retailers who use multiple channels. What are the various channels used by each? Do the students giving these examples use all the channels? If so, how and when?

Stores offer a number of benefits to customers that they cannot get when shopping through catalogs and the Internet. These benefits include: PPT 3-5 provides a summary of the unique benefits of stores, catalogs, and the Internet.

Browsing. While many consumers surf the Internet and look through catalogs for ideas, most consumers still prefer browsing in stores.

Ask students if they consider any store to be their favorite for shopping. In other words, do they look forward to shopping at that store? If so, why?

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Touching and Feeling Products. Perhaps the greatest benefit offered by stores is to allow customers to use all of their senses when examining products- touching, smelling, tasting, seeing, and hearing.

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Personal Service. Store sales associates still have the capability of providing meaningful, personalized information. Customers for durable goods, such as appliances, report that salespeople are the most useful information source.

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Cash Payments. Stores are the only channel that accept cash payments. Many customers prefer to pay cash because it is easy, resolves 71

the transaction immediately, and does not result in potential interest payments. •

Entertainment and Social Experience. Instore shopping can be a stimulating experience for some people, providing a break in their daily routine and enabling consumers to interact with friends. All nonstore retail formats are limited in the degree to which they can satisfy these entertainment and social needs.

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Immediate Gratification. Stores have the advantage of allowing customers to get the merchandise immediately after they buy it.

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Risk Reduction. When customers purchase merchandise in stores, the physical presence of the store assures them that any problems with the merchandise will be corrected.

Ask students to describe their favorite entertainment elements of the store shopping experience.

Which types of merchandise do students feel required the immediate gratification factor? For which merchandise categories is immediate gratification not such a big deal?

B. Catalog Channel •

See PPT 3-7 Convenience. Catalogs, like all nonstore formats, offer the convenience of looking at merchandise and placing an order any day at any time from almost anywhere.

Ask students: If the course schedule listing for each semester also had a corresponding list of prescribed texts for each course at the same prices as the campus bookstore and a convenient toll-free telephone number, would they buy their text through this catalog? Why or Why not?

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Safety. Nonstore retail formats have an advantage over store-based retailers by enabling customers to review merchandise and place orders from a safe environment – their homes.

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Quality of Visual Presentation. The photographs of merchandise in catalogs, while not as useful as in-store presentations, are superior to the visual information that can be displayed on a CRT screen.

C. Internet Channel •

See PPT 3-8, 3-9 In addition to the convenience and security of shopping from home or work at any time, the electronic channel has the potential for offering a greater selection of products and more personalized information about products and services. These benefits include: (1) broader selection, (2) more information to evaluate merchandise, and (3) personalization.

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Discuss the advantages shopping on the Internet has over shopping in a store? Shopping through a catalog?

Ask students about the products and purchase

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Broader Selection. A potential benefit of the electronic channel, compared to the other two channels, is the vast number of alternatives available to consumers. However, the advantages of having a lot of alternatives is only meaningful if one can have some mechanism to search through them and find a few items one might like to look at in detail.

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More Information to Evaluate Merchandise. Using an electronic channel, retailers have the capability of providing as much information as each customer wants, more information than they can get through store and catalog channels. The electronic channel can respond to customers’ inquiries just like a sales associate would. Also, information on the electronic channel database can be frequently updated and will always be available. The cost of adding information to an electronic channel is likely to be far less than the cost of continually training thousands of sales associates.

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situations where the broader selection offered by the Internet may be particularly useful.

Ask students about a new purchase context; say buying a good home theater system. If they do not know anything about the product, or how to evaluate it, where would they look for information first, the Internet or the local electronics store? What are the reasons behind this choice of channel?

PPT 3-10, PPT 3-11

The Internet channel also offers retailers an opportunity to go beyond the traditional product information available in stores to provide tools and information for solving customers’ problems. Virtual communities, networks of people who seek information, products, and services and communicate with one another about specific issues, are examples of these problem-solving sites. Personalization. The most significant potential benefit of the Internet channel is its ability to personalize the information for each customer economically. The Internet offers the opportunity to provide “personal” service at a low cost.

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To improve customer service from an electronic channel, many retailers are offering live, online chats. An online chat provides customers with the opportunity to click a button anytime and have an instant messaging email or voice conversation with a customer service representative.

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The interactive nature of the Internet provides an opportunity for retailers to personalize 73

How many students have participated in a productrelated virtual community? Ask several students to describe the experience and the types of information they were able to find.

See PPT 3-12

Consider two lists of DVDs available for rental. List 1 is organized alphabetically. List 2 provides 10 items at a time ordered in any manner that the customer wants – according to how big a bit the movie was when it was first released in a theater, the leading stars, the director, etc. Which list will the students prefer? Why?

their offerings for each of their customers, such as allowing customers to create a personal homepage that is tailored to that customer’s individual needs. •

Another personalization technique used by Internet retailers is the electronic agent. An electronic agent is a computer program that locates and selects alternatives based on predetermined characteristics. The agent can search through a wide range of alternatives, select a small set for the customer to look at in detail, and provide the information that the customer typically considers. The agent could learn a customer’s tastes by asking questions when it is installed on the consumer’s computer or when the customer goes to the retailer’s web site. The agent essentially functions as a super sales associate in a department store, helping customers locate merchandise they might like.

See PPT 3-13, 3-14, and 3-15 for other characteristics of Internet Retailers.

See PPT 3-16, 3-17, 3-18, and 3-19

D. Selling Merchandise with Touch and Feel Attributes •

Overcoming barriers to selling “touch and feel” merchandise, merchandise requiring fit, taste, or smell evaluations for example, is a major concern for Internet retailers.

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One approach Internet retailers have adopted to overcome this limitation is the sale of familiar, trusted brands. These brands provide a consistent experience for consumers that helps to overcome the difficulty of not being able to touch and feel the merchandise prior to purchase online.

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Internet retailers are also turning to technology enhancements such as opportunities for consumers to view multiple images, angles and perspectives on each merchandise item. The use of these imageenhancing technologies has increased conversion rates (the percentage of customers who buy the product after viewing it) an reduced returns.

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Internet apparel retailers are particularly benefiting from the use of image-enhancing technologies in the form of virtual models. 74

What advantages does shopping on the Internet have over shopping in a store? Shopping through a catalog?

(See PPT 3-17) Gifts are an especially popular Internet purchase. Ask students why this is the case. (Because stores provide no better “touch-and-feel” information than the Internet when buying for another person, such as perfume for your mother. The Internet also provides benefits of time and convenience in packaging and shipping.)

These virtual models enable customers to see how merchandise looks on an image with similar proportions to their own and then rotate the model to evaluate the fit from different angles. •

Some service retailers significantly benefit from the presentation of the look-and-see attributes of their offering online. Airlines and travel cites, such as Travelocity, along with many banks, benefit from the ability to clearly lie out and categorize multiple options in a self-service format for customers.

Ask students what services they have purchased over the Internet. What advantages do those services have over purchasing the same services through traditional channels?

E. Perceived Risks in Electronic Retailing See PPT 3-20 and 3-21

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Most consumers also have some concerns about buying products through an electronic channel.

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The two critical perceived risks are: (1) security of card transactions on the Internet, and (2) potential privacy violations.

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The perception of risk is diminishing as credit card companies promote the use of their cards on the Internet and inform consumers that the customers will not be responsible for security lapses.

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Consumers are concerned about the ability of retailers to collect information about their purchase history, personal information, and search behavior on the Internet.

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II. The Evolution Toward Multi-Channel Retailing •

In response to the growth of Internet access and usage and the success of some Internet retailers such as Amazon.com, many storebased and catalog retailers are now aggressively selling merchandise over the Internet or at least considering it. See PPT 3-36

A. Reasons for Becoming a Multi-Channel Retailer •

Traditional store-based and catalog retailers are placing more emphasis on their electronic channels and evolving into multi-channel retailers for four reasons.

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First, an electronic channels overcomes some of the limitations of their traditional formats.

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Second, the electronic channel gives them an opportunity to reach new markets.

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Third, providing multiple channels helps build "share of wallet." Share of wallet is the percentage of total purchases made by a customer in a given store.

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Finally, an electronic channel enables retailers to gain valuable insights into their customers’ shopping behavior.

1. Overcoming Limitations of Existing Format •

One of the greatest constraints facing storebased retailers is the size of their stores. The amount of merchandise that can be displayed and offered for sales in stores is limited. By blending stores with Internet-enabled kiosks, retailers can dramatically expand the assortment offered to its customers.

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The availability and knowledge of sales associates can vary considerably across stores or even within a store at different times during the day. This inconsistency is most problematic for retailers selling new, complex merchandise. Kiosks can be designed and used by sales associates and customers for product information. 76

Ask students to consider examples of specialty stores that also have an Internet presence. Or, alternatively, a visit to the website of such stores and evaluation of the services offered online and in-store can be a take-home assignment.

PPT 3-37

2. Expanding Market Presence •

Adding an electronic channel is particularly attractive to firms with strong brand names but limited locations and distribution.

3. Increasing Share of Wallet •

While an electronic channel may lead to some cannibalization, its synergistic use with other channels can result in consumers making more purchases from a retailer. The electronic channel drives more purchases to the stores and the stores drive more purchases to the web site.

4. Insights into Customer Shopping Behavior •

An electronic channel can provide valuable insights into how and why customers shop and are dissatisfied or satisfied with their experiences.

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The electronic channel offers the opportunity to collect more detailed information about customer preferences.

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An electronic channel can be used to get both positive and negative feedback from customers.

III. Capabilities Needed for Multichannel Retailing •

One common phenomenon in Internet retailing is known as "abandoned shopping carts." This occurs when customers select items from the retailers site, place it in a shopping basket, but either before checkout or during checkout, decide not to buy. Consider the reasons why such customers did not complete their orders.

See PPT 3-26 to PPT 3-33 for discussion here.

To effectively operate and realize the benefits of multichannel retailing, firms need to have skills in: (1) developing assortments and managing inventory; (2) managing employees in distant locations; (3) distributing merchandise efficiently from distribution centers to stores; (4) presenting merchandise effectively in catalogs and web sites; (5) processing orders electronically; (6) efficiently distributing individual orders 77

Talk with students about the various capabilities needed for success in multichannel retailing. Ask students which types of retailers seem best positioned to attain this success. Why?

to homes; (7) operating communications and information systems that provide a seamless interface with customers throughout all the channels. See PPT 3-28 and 3-29

A. Who Has These Critical Resources? •

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Catalog retailers are best positioned to exploit an electronic retail channel. They have very efficient systems for taking orders from individual customers, packaging the merchandise ordered for shipping, delivering it to homes, and handling return merchandise. They also have extensive information about their customers and database management skills needed to effectively personalize service. Store-based and catalog retailers are ideally suited to offer assortment and efficiently manage merchandise inventories. Typically, they have more experience and greater skills in putting together merchandise assortments, a skill that most manufacturers and pure electronic retailers lack. In additional, storebased and catalog retailers typically have more credibility than manufacturers when suggesting merchandise since they offer an assortment of brands from multiple suppliers. These traditional retailers also have relationships with vendors, purchasing power, and information/distribution systems in place to manage the supply chain from its vendors to the retailers' warehouses. Finally, some catalog and store-based retailers presently sell unique merchandise – they develop private label merchandise. Most store-based retailers and manufacturers lack the appropriate systems for individual orders to households. However, store-based retailers with broad market coverage can use their stores as convenient places for electronic shoppers to pick up their merchandise and return unsatisfactory purchases. Pure electronic retailers did not have the wealth of past purchase data that store-based and catalog retailers had. Since 78

Which catalog retailer is doing the best job of retailing over the Internet? What are the reasons for this success?

Which traditional bricks-and-mortar retailer has made a successful transition onto the Internet? Why?

See PPT 3-10 and 3-31

See PPT 3-33 and 3-34

See PPT 3-34

manufacturers sell to retailers, they have even less information about specific customers who buy their products. In addition, electronic-only retailers lacked the retailing skills building merchandise assortments, managing inventory, and fulfilling small orders to households. Over time, these electronic retail entrepreneurs have recognized the importance of these retailing skills and hired executives from traditional retailers. •

Large store-based retailers and national brand manufacturers have high awareness and strong reputations. On the other hand, only a few catalog and Internet-only retailers are well known and respected by consumers.

B. Do Manufacturers Use the Electronic Channel to Sell Their Products? •

Disintermediation occurs when a manufacturer sells directly to consumers, bypassing retailers.

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Retailers are concerned about disintermediation because manufacturers can get direct access to consumers by establishing a retail site on the Internet.

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However, manufacturers lack some of the critical resources to sell merchandise electronically.

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Retailers are more efficient in dealing with customers than manufacturers. They have considerable more experience than manufacturers in: (1) distributing merchandise directly to customers, (2) providing complementary assortments, and (3) collecting and using information about customers. Retailers also have an advantage since they can provide a broader array of product and services to solve customer problems.

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If manufacturers start selling direct, they risk losing the support of the retailers they bypass.

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Ask students to address the question: which channel should be most profitable?

C. Which Channel is the Most Profitable? •

Although the electronic channel may appear to hold the greatest profit potential due to eliminating costs off building and operating stores and compensating store employees, these Internet retailers face significant costs to design and maintain Web sites, attract customers to the site, maintain distribution and warehouse systems and deal with a high level of returns.

See PPT 3-14 for discussion of the relative costs for each channel

See PPT 3-42

IV. Issues in Multichannel Retailing •

In order to provide the same face to a customer across multiple channels, retailers need to integrate their customer databases and systems used to support each channel.

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In addition to information technology issues, other critical issues facing retailers that desire a customer centric offering involve: (1) an integrated shopping experience, (2) brand image, (3) merchandise assortment, and (4) pricing.

A. Integrated Shopping Experience •

When retailers initially went online, they simply displayed products for sale on their Web sites. Today, multichannel retailers need to provide features and services that enhance the customer’s experience across channels. Some of these services may include: (1) store receipts indicating the URL for the retailer’s Web site, (2) Web sites offering information about what merchandise is available in the consumer’s local store, and (3) a return policy in which the retailer’s stores accept items purchased online.

B. Brand Image •

Multi-channel retailers need to project the same image to their customers through all channels.

C. Merchandise Assortment •

Typically customers expect that everything they see in a retailer's store will also be available on their web site. A significant 80

Ask students to discuss additional strategies or policies that multichannel retailers are using to provide customers with an integrated shopping experience.

product overlap across channels reinforces the "one brand" image in the customer's mind. The trend now is to integrate the merchandise offerings across channels. •

Other multi-channel retailers use their Internet channel to increase revenues by expanding the assortment they can offer to customers.

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Many multi-channel retailers have tailored the assortments sold on their web site to only include products their customers are likely to buy over the Internet.

D. Pricing •

Customers expect pricing consistency across channels (excluding shipping charges and sales tax). However, in some cases, retailers need to adjust their pricing strategy because of competition they face in different channels

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Retailers with stores in multiple markets often set different prices for the same merchandise to deal with differences in local competition. Multi-channel retailers may have difficulties sustaining these regional price differences, since customers can easily check prices on the Internet.

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Multi-channel retailers are beginning to offer new types of pricing, like auctions, that take advantage of the unique properties of the Internet. See PPT 3-43

V. Shopping in the Future •

The seamless interface across channels that customers in the future may experience is illustrated through a scenario.

A. Shopping Experience •

The scenario described illustrates the advantages of having a customer database shared by all channels and integrated systems.

B. Supporting the Shopping Experience •

See PPT 3-44 The scenario illustrates the advantages of having a customer database shared by all 81

channels and integrated systems. •

The scenario also includes some new technologies that will be in the store of the future such as RFID, self-checkout, and personalized visual reality displays.

VI. SUMMARY

ANSWERS TO DISCUSSION QUESTIONS AND PROBLEMS 1.

Why are store-based retailers aggressively pursuing sales through an electronic channel? Stores have realized several distinct benefits of an electronic channel that overcome their traditional limitations. First, an electronic channel enables stores to expand nationally and globally at a relatively low cost. Consider, for example a regional store with locations in 4 states in the Western U.S. This store can service customers in other parts of the country through an electronic channel. Even if the cost of setting up a fully functional state-of-the-art website may be high, the costs of locating several stores in each of the other 46 states would likely be prohibitively higher. Second, an electronic channel enables stores to gather more information about their customers, their preferences and shopping habits. In a physical store format, stores gain some limited information on the purchases made by customers only when the customers use a credit card for shopping. But the information systems used in electronic channels can track customer visits, monitor their movements through the website, and help create customer data that can be used for providing personalized attention as well as better service and merchandise. Third, by offering an additional electronic format, stores can now provide more options to customers who, depending on the product category or purchase occasion, may prefer such electronic channels as well from time-to-time. Thus, by giving alternatives to store formats to customers, stores have a better chance of retaining their customers and increasing their share of wallet. Finally, using their superior retailing expertise and well-known images, stores using an electronic format find themselves in a competitively advantageous position as compared to Internet-only retailers. The costs of acquiring customers are lower for established store than for the relatively unknown Internet retailers and may contribute to enhanced profitability.

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What capabilities are needed to be an effective multichannel retailer? To effectively operate and realize the benefits of multichannel retailing, firms need to have skills in: (1) developing assortments and managing inventory; (2) managing employees in distant locations; (3) distributing merchandise efficiently from distribution centers to stores; (4) presenting merchandise effectively in catalogs and web sites; (5) processing orders electronically; (6) efficiently distributing individual orders to homes; and (7) operating communications and information systems that provide a seamless interface with customers throughout all the channels.

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From a customer's perspective, what are the benefits and limitations of stores? Catalogs? Retail web sites?

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Stores allow customers the benefits of a high sensory experience when browsing and shopping. Customers can touch and feel products and seek information from qualified sales associates before purchase. Moreover, they can pay in cash and thus avoid both the need to give out personal information and the high interest rates charged by credit card companies. Customers can obtain immediate gratification in that they can take home the product immediately after purchase. Customers feel comfortable with the quality and service (including the possibility of post-sales returns) when they are buying from known and reputed stores. Returning a product is easier to a store compared to other formats. However, customers are constrained by the limited choices among the merchandise assortment available at the store. Customers also have to spend considerable time and effort in comparative shopping to ensure that they have obtained the best quality, price and/or value. Also, customers often go through the added inconvenience of picking the merchandise themselves and waiting at long check out lines. Catalogs allow customers the convenience of anytime, any place shopping. Consumer and credit information is better protected when shopping through a catalog. Also, many catalogs provide items that are not available in stores. Catalogs are particularly convenient when the product category selection is limited in local stores. For example, customers living in more rural areas may find catalog shopping to be a very convenient alternative. Since the customer does not have to travel to unknown and unsafe areas to make a purchase, catalogs provide a safer alternative as compared to physical stores. However, catalogs provide very little pre-sales information that the customer may desire about the product. While some of this information may be obtained over the phone, in most cases, the customer may only encounter an order taker with limited knowledge at the other end of the phone line. Customers can see better pictures than over the computer screen, but sometimes critical information may not be available. Returns are cumbersome, since the customer would have to repackage the product and may have to drop it off at the post or UPS delivery location. Moreover, catalogs provide limited assortment. The Internet offers the convenience of always open retailing. Customers can order anytime and can more efficiently comparison shop for products, brands, and prices. Customers are exposed to a very wide assortment of products and brands and can make choices not only across products and brands but also across the retailers who stock them. There is greater personalization which benefits customers in selecting products and making purchase decisions. Detailed information, even on new product categories, can be obtained more easily. However, the consumer may be wary of unknown retailers over the Internet, fearing that the order may not be fulfilled or that the delivery promises may not be kept or the product quality may not be as advertised. Also, customers find their risks to be high, especially when they have to provide personal and credit card information over the Internet. Consumers may find that less presales information is available for products that require touching-and-feeling before purchase. Also, the costs of making a bad decision are high, especially since Internet retailers vary in terms of their return policies (some charging a hefty restocking fee).

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Do you think electronic retailing will eventually have annual sales greater than catalog sales? Why or why not? We believe electronic retailing will eventually surpass the sales of catalogs for several reasons. First, electronic retailing has all of the advantages of catalogs with few of the disadvantages. For 83

instance, Internet retailers can update their offering or prices instantly. The same types of merchandise that sell well in catalogs should also sell well over the Internet. Also, electronic retailers don’t have to deal with costly catalogs. Second, Internet penetration, at least in the United States, is growing at a geometric rate. Finally, as broadband Internet connections become more readily available, the amount of Internet sales, compared to catalog sales, will increase at an even greater rate. 5.

Why are electronic retailers and catalogers frequently patronized for gift giving? Buying gifts from electronic retailers and catalogers offers the benefit of saving customers the time and effort of packaging and sending the gift. Also, if the receiver doesn’t like the gift, they can more easily return it than if they had to return it to a bricks and mortar retailer in another area.

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Should a multi-channel retailer offer the same assortment of merchandise for sale on its web site at the same price as it sells in its stores? In general, a multi-channel retailer should attempt to offer the same assortment of merchandise, at the same prices, across all channels. By ensuring parity between the store, catalog, and/or web site, the retailer sends a uniform message about its quality, prices and reputation to the consumer. However, significant operating, competitive and regulatory considerations may contribute to differences in merchandise and prices in a retailer's store as compared to its website. First, in terms of operating considerations, some retailers, manufacturers and service providers may find lower costs of operating and making a sale through the web site. These lower costs can be passed on to customers in terms of lower prices. For example, most airline firms now prefer customers to browse and buy tickets from their web site due to cost and efficiency considerations and therefore alert customers to the possibility of lower prices on their web site through a recording as soon as the customer calls the airline's reservation phone number. In terms of merchandise, retailers may find that bulky items requiring tremendous handling and packaging and incurring high shipping costs are not appropriate for selling over the Internet. For example, it may be difficult to buy bulky furniture and home improvement items over the Internet, especially when the retailer can not make home delivery or drop ship the product. Second, retailers may charge different prices in specific physical locations to match or better the prices charged by local competitors. Third, sales tax regulations may force retailers to collect sales tax as well shipping and handling charges from customers who are from the states in which the retailer has a physical presence. Thus, customers from these states would be charged higher delivered prices through the Internet since they pay both the sales tax and shipping charges, while customers visiting the physical store would pay only the sales tax.

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Which of the following categories of merchandise do you think could be sold effectively by nonstore retailers: jewelry, TV sets, computer software, high fashion apparel, pharmaceuticals, and health care products such as toothpaste, shampoo, and cold remedies? Why? Lower end costume jewelry can and is sold effectively by nonstore retailers. It is because this merchandise can be presented well and accurately in a catalog and on television, or even over the Internet. Television sets could probably not be sold effectively simply because seeing is believing. Without actually seeing the picture quality on any given television it would be prohibitively 84

difficult for most people to consider purchasing one without first seeing it in the store. Perhaps a nonstore retailer could be successful selling televisions if they could acquire first quality popular models in sizable quantities. Then, if enough people find out about the retailer, customers might consider purchasing televisions from them after first seeing the televisions in the store. High fashion apparel would probably not sell well through nonstore retailers. The fit, feel, and detail of high fashion merchandise would not come across without the customer actually seeing, feeling, and trying it on in a store. Commodity apparel merchandise, however, can and does sell well through nonstore retailers. Pharmaceuticals have experienced higher than average sales growth through nonstore retailers recently. It is however, difficult to determine what the ultimate nonstore retailer sales potential will be for pharmaceuticals. The population is getting older, thereby increasing the demand for many pharmaceutical products. But many pharmaceutical products require a prescription. At the moment, the practices of some Internet retailers of prescription pharmaceuticals are being called into question because in some cases it is too easy for patients to get prescriptions from a physician to be filled on line. Health care products such as toothpaste, shampoo, vitamins and other staples might sell well through nonstore retailers. Some Internet retailers are currently using these products as loss leaders and to encourage customer loyalty. Unfortunately, these retailers cannot base their fortunes on the sale of these products due to low margins and relatively high shipping costs. Other health care products, such as cold remedies would probably not sell well through nonstore retailers in the long term because they are generally purchased as needed and consumed almost immediately after purchase. For example, if someone catches a cold, they need to remedy the cold as soon as they catch it. They will not have the time to wait for the medicine to be delivered.

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What is an electronic agent? What benefit does it offer to consumers? An electronic agent is a computer program that locates and selects alternatives based on some predetermined characteristics. For example, Travelocity.com searches for the best price for an airline ticket after the customer fills out an electronic form stating destination, dates, times, etc. Electronic agents benefit consumers by enabling them to comparison shop without going to different stores, different sites, or even “letting their fingers do the walking through the Yellow Pages.”

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Assume you are interested in investing in a virtual community targeting people interested in active outdoor recreation such as hiking, rock climbing, and kayaking. What merchandise and information would you offer on the site? What type of a company do you think would be most effective in running the site – a well known outdoors person, a magazine targeting outdoor activity, or a retailer selling outdoor merchandise. Why? The focus of the site, particularly if run by a retailer, is to sell outdoor equipment. The equipment therefore would be the focal point of the site and would be organized around particular activities. Each category would have detailed information on the products and how they are used. In addition, information should be available about locations for using the equipment. So, if someone were going kayaking in Colorado, there would be maps and directions for rivers for kayaking. Links to other websites, such as tourist bureaus, would also be helpful.

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A retailer selling outdoor merchandise would be most effective in running the site because they have the strongest incentive to provide customers with a reason to visit their site. There could be some bias in merchandise selection with the retailer. But magazines or a well known expert might introduce bias as well.

10.

Outline a strategy for an electronic business that is involved in selling merchandise or services in your college town. Outline your strategy – your target market and the offering at your Internet site. Who are your competitors in providing the merchandise and/or service? What advantages and disadvantages do you have over your competitors? A type of electronic business that could be expected to thrive in a college dorm would be a quick delivery service. Such a service could specialize in products/services that college students frequently buy/rent such as video tape rentals, CDs, fast food, laundry/cleaning, etc. There are currently services like this available in certain areas. Being a first mover, developing a loyal customer base, and making a profit are all considerations when going into a business like this.

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ADDITIONAL ASSIGNMENTS AND EXERCISES Exercise 3-1 Segmentation Characteristics of Online Shoppers According to shop.org, the electronic retailers’ knowledge exchange, total online retail spending in general merchandise is projected to reach $151.3 billion by 2010, up from $75.7 billion in 2004.1 Describe the segmentation characteristics of consumers comfortable with using the Internet channel for shopping in the table below. Be prepared to discuss in class. Segmentation Bases

Characteristics of Consumers Shopping Online

Geographic

Access to technology

Gender

Age

Usage rate

Household Income

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“Statistics: US Online Shoppers.” Shop.org, Available: http://www.shop.org/learn/stats_usnet_general.asp, March 9, 2005.

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Exercise 3-1 with Answers Segmentation Characteristics of Online Shoppers According to shop.org, the electronic retailers’ knowledge exchange, total online retail spending in general merchandise is projected to reach $151.3 billion by 2010, up from $75.7 billion in 2004.1 Describe the segmentation characteristics of consumers comfortable with using the Internet channel for shopping in the table below. Be prepared to discuss in class. Segmentation Bases

Characteristics of Consumers Shopping Online

Geographic

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In 2002, 544 M people had Internet access at home or at work North America 181 M Europe 171 M Asia 157 M

Access to technology

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66% of households in the US own a computer and 63% have access to the Internet at home, work or school 25% of homes with Internet access have a broadband, high-speed connection 55% of households with Internet access purchased products online

Gender

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Early users were males, educated and with higher incomes Now the demographics of the Internet reflect the general population

Age

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Teenagers and children are a fast growing segment 77 M people under 18 online globally by 2005 Very young, no credit cards, may have shopping accounts Adults over 50 also a fast growing segment on the Internet This age group comprises 20% of Internet users 70% have home access to the Internet Spend on average 130 minutes per day online, 50% more than any other age group

Usage rate

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86 minutes per day (x * 1.5 = 130) $244 per transaction (1)

Household Income

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A typical web shopper has a household income of more than $70,000 per year (1)

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1

“Statistics: US Online Shoppers.” Shop.org, Available: http://www.shop.org/learn/stats_usnet_general.asp, March 9, 2005.

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