E-commerce uses a Web site to transact or facilitate the sale of products and services online. Online retail sales have exploded, and it is easy to see why. Online retailers can predictably provide convenient, informative, and personalized experiences for vastly different types of consumers and businesses. By saving the cost of retail floor space, staff, and inventory, they can also profitably sell low-volume products to niche markets.
While consumers often go online to try to find lower prices,64 online retailers in fact compete in three key aspects of a transaction: (1) customer interaction with the Web site, (2) delivery, and (3) ability to address problems when they occur.65
We can distinguish between pure-click companies, those that have launched a Web site without any previous existence as a firm, and brick-and-click companies, existing companies that have added an online site for information or e-commerce.
1. PURE-CLICK COMPANIES
There are several kinds of pure-click companies: search engines, Internet service providers (ISPs), commerce sites, transaction sites, content sites, and enabler sites. Commerce sites sell all types of products and services, notably books, music, toys, insurance, stocks, clothes, financial services, and so on. They use various strategies to compete: AutoNation is a leading metamediary of car buying and related services; Hotels.com is the information leader in hotel reservations; Buy.com leads on price.
E-COMMERCE SUCCESS FACTORS Companies must set up and operate their e-commerce Web sites carefully. Customer service is critical. Online shoppers may select an item for purchase but fail to complete the transaction. Worse, only 2 percent to 3 percent of visits to online retailers lead to sales, compared with 5 percent of visits to department stores.66
To improve conversion rates, firms should make the Web site fast, simple, and easy to use. Something as simple as enlarging product images on screen can increase perusal time and the amount customers buy.67 Some of the larger e-commerce firms such as eBay and Amazon are offering same-day delivery in major markets.68 A good return policy is also crucial.69 To drive traffic to a site, many firms employ affiliate marketing, paying online content providers to drive business to their brands’ sites.70
Consumer surveys suggest that the most significant inhibitors of online shopping are the absence of pleasurable experiences, social interaction, and personal consultation with a company representative.71 Firms have responded. Many now offer live online chat to give potential customers immediate advice about products and suggest additional items. When a representative is active in the sale, the average dollar amount per order is typically higher. B-to-B marketers also need to put a human face on their e-commerce presence, and some are taking advantage of technologies such as virtual environments, blogs, online videos, and click-to-chat.
To increase customer satisfaction and the entertainment and information value of online shopping experiences, some firms are employing avatars, animated characters that act as company representatives, personal shopping assistants, Web site guides, or conversation partners. Avatars can enhance the effectiveness of an online sales channel, especially if they are seen as expert or attractive.72
Ensuring security and privacy online remains important. Customers must find the Web site trustworthy, even if it represents an already highly credible offline firm. Investments in Web site design and security can help reassure customers sensitive to online risk.73
B-TO-B E-COMMERCE Although business-to-consumer (B-to-C) Web sites have attracted much attention in the media, even more activity is being conducted on business-to-business (B-to-B) sites, which are changing the supplier-customer relationship in profound ways.
In the past, buyers exerted a lot of effort to gather information about worldwide suppliers. B-to-B sites make markets more efficient, giving buyers easy access to a great deal of information from (1) supplier Web sites; (2) infomediaries, third parties that add value by aggregating information about alternatives; (3) market makers, third parties that link buyers and sellers; and (4) customer communities, where buyers can swap stories about suppliers’ products and services.74
Firms are using B-to-B auction sites, spot exchanges, online product catalogs, barter sites, and other online resources to obtain better prices. Ironically, the largest of the B-to-B market makers is Alibaba, homegrown in China where businesses have faced decades of Communist hostility to private enterprise.75
ALIBABA The brainchild of Jack Ma, Alibaba began in 1999 and has grown through the years to become the world’s largest online marketplace, allowing people and businesses to buy and sell any type of product—from Fuji apples to Boeing 737s. Its numbers are staggering. The $15 billion company has 500 million registered users on nine platforms in 220 countries and regions and enjoys about 80 percent of the Chinese e-commerce market.
On Singles’ Day on November 11,2012—a local twist on Valentine’s Day and China’s biggest online shopping day—Taoboa (a consumer-to-consumer marketplace) and Tmall (a business-to-consumer marketplace), Alibaba’s two main platforms, topped $5.75 billion in sales from 400 million unique visitors in 24 hours. More than 10 million of the 16 million parcels delivered in China each day originate from Taobao and Tmall, so logistics providers are crucial (there are no UPS or FedEx counterparts). A cross between Amazon.com, eBay, Rackspace, and PayPal, Alibaba makes money primarily from commissions and from advertising by buyers and sellers exchanging goods. To establish customer trust, the company set up TrustPass, in which users pay Alibaba a fee to hire a third party that verifies them. Users must have five people vouch for them and provide a list of all their certificates/business licenses. Anyone who has done business with a user is encouraged to comment, in the same way buyers comment on sellers in Amazon.com’s or eBay’s marketplace. The company is valued at more than $120 billion, making Yahoo’s 24 percent stake in it a very wise investment.
The effect of these B-to-B mechanisms is to make prices more transparent. For undifferentiated products, price pressure will increase. For highly differentiated products, buyers will gain a better picture of the items’ true value. Suppliers of superior products will be able to offset price transparency with value transparency; suppliers of undifferentiated products will need to drive down their costs in order to compete.
2. BRICK-AND-CLICK COMPANIES
Although many brick-and-mortar companies once hesitated to open an e-commerce channel for fear of conflict with their channel partners, most have added the Internet after seeing how much business was generated online.76 Even Procter & Gamble, which used traditional physical channels of distribution exclusively for years, is selling some big brands such as Tide, Pampers, and Olay online via its P&G e-store, in part to be able to examine consumer shopping habits more closely.77 One study showed that more than a third of Internet users have made purchases directly from brand Web sites.78
Managing the online and offline channels has thus become a priority for many firms.79 There are at least three strategies for trying to gain acceptance from intermediaries. One, offer different brands or products online and offline. Two, offer offline partners higher commissions to cushion the negative impact on sales. Three, take orders on the Web site but have retailers deliver and collect payment. Harley-Davidson decided to tread carefully before going online.80
HARLEY-DAVIDSON Given that Harley-Davidson sells more than $1 billion worth of parts and accessories and general merchandise to its loyal followers—generating roughly one-quarter of its annual revenue—an online venture to reach even more customers was an obvious next step. The company needed to be careful, however, to avoid the wrath of its 850 dealers who benefit from high margins on their sales. Its solution was to prompt online customers to select a participating Harley dealer from which to purchase, ensuring that the dealer remains the focal point of the customer experience. Dealers, in turn, agreed to a number of standards, such as checking for orders twice a day and shipping promptly. In-store pickup is also an option, and some products are available only in-store.
Source: Kotler Philip T., Keller Kevin Lane (2015), Marketing Management, Pearson; 15th Edition.