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Internet Retailing

Internet Retailing. Stock prices down Demands for government regulation/taxation growing Margins are thin Supplier relationships testier. Revenue % 100% COGS % 87% GM% 13% Mkt./Adv. 24% Other op. exp. 23% Tot. Op. exp. 47% Op. Income -33%.

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Internet Retailing

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  1. Internet Retailing • Stock prices down • Demands for government regulation/taxation growing • Margins are thin • Supplier relationships testier HED 460

  2. 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% E-retailers vs. bricks HED 460

  3. Internet 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 edge HED 460

  4. Internet 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 460

  5. Internet 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 centers HED 460

  6. Internet 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 business HED 460

  7. Internet Retailing • Some categories are saturated • Pets • Petopia.com, Petstore,com, Petwarehouse.com, PETsMART.com • Sporting goods HED 460

  8. Internet 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 - $20 HED 460

  9. Internet Retailing Strategies • Raising product prices • Being less promotional • Lowering/eliminating shipping charges* HED 460

  10. Internet Retailing Strategies • Destination site • Category focus to focus on all things related to the category • Relevant content • Product reviews • Advice columns • Celebrity interviews • News HED 460

  11. Internet Retailing Strategies • Destination site, cont. • Building community on-line – interaction • Message boards • Chat rooms • Lands’ End, CarsDirect, TechnoScout HED 460

  12. Results 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 460

  13. Internet 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 catalogs HED 460

  14. Amazon.com* Office Depot Staples Gateway Costco BarnesandNoble Buy.com* QVC.com The Spiegel Group JC Penney Top 10 E-tailers 2001(Revenue) HED 460

  15. Question #1 • What percentage of U.S. households have a computer at home? • 66% HED 460

  16. Question #2 • What percentage of U.S. households have a Internet access at home? • 63% • Gap continues to narrow HED 460

  17. Question #3 • What country has the highest percentage of Internet users? • Finland – 58% • Sweden – 44% • Canada – 41% • USA – 37% HED 460

  18. Question #4 • What is it cost to service online customers? • Phone - $33.00 • E-mail - $9.99 • Live Chat - $7.80 • Self-service - $1.17 Forrester Research HED 460

  19. Question #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 460

  20. Question #6 • What are the 3 attributes of favorite web sites? • Good product selection • Competitive prices • Ease of use HED 460

  21. Question #7 • What is the greatest barrier to online purchasing? • Fear factor - Credit card safety (69%), then privacy (61%) HED 460

  22. Other barriers • Other fears • Returns • Customer service questions answered • Feel factor • Feel, see, try out/on • Prefer shopping at stores HED 460

  23. Try-out/”experience” • Zanybrainy.com – selected toys • 3D interaction to zoom in and out, “use” products (sharperimage.com) • My model (Lands’ End) HED 460

  24. HED 460

  25. Other 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 long HED 460

  26. Question #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 460

  27. The Fit Issue • Virtual models (landsend.com and jcpenney.com) • Fit guides and comparisons (pants@gap.com and eddiebauer.com) HED 460

  28. Question #9 • What is the cause of e-shoppers abandoning their shopping carts? • Excessive shipping costs (1/2) • 47% abandonment rate • Present shipping costs up front HED 460

  29. Question #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 hosiery HED 460

  30. Question #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 460

  31. Question #12 • How many Internet users are purchasing online? • 55% (77% browsed/shopped) • Vs. 51% and (75%) last year HED 460

  32. Question #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 • Synergies HED 460

  33. What has Amazon done right? • Amazon simplifies shopping • Equity built with consumers is saving Amazon with investors • Selection, competitive prices • Ease of navigating site/convenience • Delivery speed and options • Partnerships HED 460

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