e-Tailing and Multi-Channel Retailing
At a basic level, any commercial transaction that involves a direct sale to a consumer at any point of time may be termed as retailing. It can be the selling of apparel, books, music, footwear, grocery items or other things. Such a retail trade could take place in a shopping mall, a mom-and-pop store, a department store, or in a friendly neighborhood grocery shop. Most of such retail trades that can be done through the brick-and-mortar retailing route can be successfully replicated over the Internet as well. In the traditional sense, the term Retailing referred to the final transaction between a business and a customer (B2C).
Other business models include:
Business-to-business (B2B) – These remain the largest source of commercial transactions (about 80% of all transactions).
Consumer-to-business (C2B) – This is an emerging sector. A good example of the consumer-to-business model is “Priceline”
Consumer-to-consumer (C2C) – This model relies on various online communities. A prominent and hugely successful example of the consumer-to-consumer model is “eBay”.
The C2B and C2C sectors are recent phenomena that have emerged taking full advantage of the various electronic media to evolve into potentially major sectors within the retail industry. Earlier, the two sectors played a minimal role in the retail industry but they are gaining momentum with a concurrent rise in the electronic commerce around the world.
We should also consider the broader impact of the web and other multiple channels on retailing. While it may not be the facilitator for the final transaction between the customer and the business (or other customer in the case of C2C), it may still play a vital role. For example, when a consumer purchases a car, he may not make the purchase online, but may use the web to do a significant part of the pre-purchase research (80% of car buyers do it). Therefore, the overall impact of Internet on the retailing process extends beyond the online transactions and goes up to educating the consumer to make the right choice through the entire purchasing process.
E-tailing currently accounts for 12% of the retail purchases in the U.S. Amazon is clearly the leading e-tailer in terms of its reach, projected buyers and the unique users around the world.
What is e-tailing?
e-tailing or e-retailing refers to the selling of retail goods electronically over the Internet. The term is a short form for “electronic retailing”, and surfaced in the 1990s for being frequently used over the Internet. The term is an inevitable addition to other similar terms such as e-business, e-mail, and e-commerce. E-tailing usually refers to the business-to-consumer (B2C) transactions.
E-tailing is gaining ground. In the year 2016, total online retail sales reached $ 1.915 trillion. Which is about 8.7% of total retail spending worldwide.
Online retailing is classified into three main categories:
1. Click – The businesses that operate only through the online channel fall into this category. Prominent examples in this category include: Dell, Amazon.com and e-Bay.
2. Click and Brick – The businesses that use both the online as well as the offline channel fall into this category. Common example includes: Barnes and Noble’s.
3. Brick and Mortar – This is the conventional mode of retailing. The businesses that do not use the latest retailing channels and still rely upon the conventional mode belong to this category.
e-tailing offers the consumers huge amounts of information in the form of web sites with useful links to similar sites that allows consumers to compare products by looking at individual items.
The convenience of online shopping is unmatched indeed. Shopping out of your home or office reduces the stresses of waiting in lines and dealing with irritating sales people.
However, E-tailing causes problems with fit, since the consumer cannot try the items on. Return policies may also act as turn offs and items can be difficult to return. The shipping and handling costs may turn the customers away. e-tailing requires technology savvy customers and this puts a limit on its potential reach. We see that E-tailing is emerging as an interesting phenomenon in the retail industry that is on a rise despite the disadvantages associated with it.
Early adoption e-tailing began to be used by major corporations and smaller entrepreneurs as early as 1997 when Dell Computers managed multimillion-dollar orders through its online Web site.
The success of online retailing businesses such as Amazon.com hastened the arrival of Barnes and Noble’s e-tail site. With improvements in technology, the concerns about secure order taking slowly started receding.
e-tailing has resulted in the development of e-tailware – a term used to refer to the software tools that are used for creating online catalogs and managing the business undertaking e-tailing. A new trend was noticed in the form of the various price comparison sites that allowed the users to compare prices from a number of different e-tailers and link them to their portals for the subsequent online purchase.
Multi-Channel Retailing The distribution of products across multiple sales channels – often referred to as multi-channel retailing – has become the norm today. According to a recent survey, multi-channel retailers in the US increased their online market share from 53 % in the year 1999 to 76 % in the year 2003 – in contrast to Internet-only retailers, who lost a corresponding market share.
For the same reason, some pure Internet retailers are gradually making a transition to multi-channel retailing. The consumer preference for multi-channel retailing calls for a study of the underlying reasons behind the user-acceptance and subsequent popularity of the particular business model.
Advantages of e tailing/ Multi-Channel retailing E-tailing offers unique advantages to the consumer that no other form of retailing can match. The hypertext nature of the medium allows for more flexible forms of transactions (growth of C2B and C2C) to flourish.
It allows for easier comparisons across broad product categories with the evolution of shopping bots and similar mechanisms. The medium also offers flexible/dynamic pricing mechanisms to the consumer.
These evolutions reduce any friction in the online market place and stimulate the use of the web as a retail environment. In the long-run, this will benefit the marketers as well as the consumers. Further, this will penalize the marketers who thrived in market places that had entry barriers in the form of a lack of freely available information. Earlier, such a situation restricted the customers in making informed choices and led to inefficient pricing and localized monopolies.
Reasons for e-tailing coming up as a hot avenue in the retail sector can be attributed to multiple factors such as:
Minimal investment – e-tailing does not require a retailer to invest in warehouses, showrooms or other commercial properties at prime locations. They operate through their web sites and thus save drastically on the real estate costs. The real estate costs in the metropolitan cities can be prohibitively high. Moreover, maintenance costs of a virtual store are negligible in comparison to a physical store.
Comfortable and easy to use – The Internet offers easy and comfortable access to all the required information by a customer. Over the Internet, product information is just a few clicks away, easily accessible from the comfort of a home. Traditional retailing is quite cumbersome in contrast to e-tailing. It involves frantic search for the required product, running up and down the retail store, asking the poorly trained store assistants for help. The process involves significant wastage of valuable time. Simply put, shopping on the Internet for fifteen minutes is equivalent to a two-hour trip to the mall. Consumers prefer to save their precious time so that they can better utilize it.
Customer interaction – The greatest benefit of online commerce is its ability to interact with the customers. Such an interaction allows the retailers to reach the individual customers and react appropriately to their responses. Interaction acts as a vital tool for mass customization. The common examples include online marketing of books, flowers, software and education. This has also led to greater satisfaction among the online buyers. According to a research agency, 81% of the buyers were found to be highly satisfied with their online purchases.
Mass Media – A supermarket is limited in its area of operation. It caters to a specific geographical location such as a city and/or its suburbs. However, a web site is globally accessible leading to a worldwide reach and an increased potential customer base.
Search option – With web search capabilities (which need further development) it is easier to find the particular types of goods required by a customer. The consumer decides what he wants to buy rather than the retailer offering what he wants to sell. This ultimately translates into consumer empowerment.
User friendly – Customers can execute transactions via the same medium the information is provided, so there is no disconnect between the desire to purchase and the ability to purchase. (Payment schemes are still evolving and therefore this advantage is likely to become more apparent in the future.)
Effective price discrimination – E-tailers can use price discrimination in an effective and efficient manner. E-tailers can use previous transactions to identify the likelihood of products being purchased at certain price points and use this information for price discrimination.
Customized product placement – E-tailers can change the online placement/display of a product based on the previous transactions so to increase the visibility of goods that the user is more likely to buy based on the previous encounter at the time purchase. This allows a contextual design of placement to ensure conversion of a visit/hit to the web site into a sale.
Global reach – Customers have a much wider choice at their fingertips (a variety of e-tail sites to choose from etc.) In this way, the web creates a global market place that brings together multiple consumers and retailers.
Disadvantages of e tailing/ Multi-Channel retailing Most of the e-tailing ventures have not been as profitable as they were expected to be, the primary reasons were:
Security issues – Security issues hold the center stage when it comes to consumer concerns while shopping through the online media. A lack of trust and privacy concerns prevents a lot of consumers from making online purchases. Consumers are also concerned with the use of their personal data provided during the online transactions.
Customer retention – In e-tailing, an increase in the customer retention by 5% leads to a corresponding increase in profits by 25%. Most of the people buying on the Internet may not be as loyal as those who buy from brick and mortar. Unsuitable for certain product categories – In case of product categories that require relatively higher customer involvement, the e-tailing route is found to be grossly inadequate in providing sufficient information to the customers. Examples include retailing of products like clothes, cosmetics etc.
Most customers are comfortable buying books and music on the Internet because the information required for making a purchase and the customer involvement is low. However, in case of a blue Trouser, the customer may want to know things such as: Which shade of blue is it? How does it feel on the skin? How easily does it crease?
The traditional retailing does not suffer from such a problem. In the non-standard product categories, the Internet offers limited amounts of crucial information to the customer. In such cases, only the seller knows about the true quality of the trouser and this leads to an ‘information asymmetry’.
Shopping is still a touch-feel-hear experience – some do not suffer from ‘time-poverty’ and shopping is still considered to be a family outing. Hence this type of an environment creates a problem of customer retention.
Complicated medium – Ease of use is a problem, as the web design may suffer from high complexity bordering on total chaos in some cases.
Navigation hiccups – E-tail stores do not have standardized designs in comparison to the physical retail stores and product catalogs. Therefore different user behaviors (navigation schemes) need to be learned for each e-tail store. This is a temporary issue as the evolution of the web continues.
Website design flaws – Graphic presentation and aesthetics may not be as compelling for a web site as in case of a physical retail store or a product catalog. This is a temporary issue that may resolve with the evolution of the web design.
Limited access to the Internet – Not all customers have access to the web, as they do to the postal system. This is a temporary issue as the evolution of the web continues.
Barriers to growth in e-tailing
1. Issues related to Customer Service, Distribution and Logistics – E-tailing tends to facilitate the business transactions, but unless the transaction involves a digital product such as software or music etc., due emphasis should be given on prompt and smooth delivery of the products. Majority of e-tailers focus on significant marketing efforts to attract customers in order to execute transactions, but tend to ignore the important aspect of customer satisfaction through a flawless delivery. It is important to follow through and ensure a smooth delivery to the customer. The companies can also use the web to enhance the customer experience by allowing the customers to track the status of the transaction. So it is not simply a case of allowing for delivery, but enhancing the delivery experience with the web.
Once this relationship is formed (via the transaction), the e-tailer can follow up with a solicited marketing program to keep the customers engaged. Customer service should be considered a high priority as it impacts the long-term relationship between the customer and the e-tailer. Customer service should be proactive to ensure prompt delivery leading to satisfaction with the product and subsequently offer a medium of dialog to the customer with the e-tailer. Recently, more attention has been paid to the delivery aspect of the entire transaction.
2. Issues related to the mode of payment – In the online medium, credit card transactions are fast becoming the preferred mode of payment. Credit card providers take a percentage of the transaction, and this may be higher for the web, than for a traditional retail store. The high transaction cost is perceived as a risk premium because the e-tailer cannot capture the signature of the purchaser to remove any possibility of credit card misuse in the online environment.
Other payment media include:
a. Smart Cards: Smart Cards are a more accepted form of payment across Europe, but due to the high penetration of credit cards in the US, Smart Cards have had a limited global impact .Much discussion has taken place with regards to the development of “smart cards” to facilitate online transactions. Smart cards allow for smaller transactions and provide anonymity (ensuring privacy) to the consumer while making the purchase. American Express is developing a smart card that would include a chip to allow the storage of digital data (transaction history and monetary values). The use of Smart Cards also requires a “reader” be placed on a consumer’s machine for accessing the web (whether a PC or a mobile device). This additional need of infrastructure acts as a barrier in its mass adoption by all the parties involved in the transaction be it the consumer, the e-tailers or the payment providers.
b. PayPal: PayPal is a tool that facilitates person 2 person (P2P) transactions in an online environment such as the eBay (eBay now owns PayPal). This payment option allows the web sites and individuals who do not accept credit cards to process online transactions in an effective and efficient manner. Both the transacting parties are required to have their own PayPal accounts. However, compared to a credit card, PayPal is a much secure online payment service since credit cards numbers are not transmitted over the internet.
c. VeriSign: VeriSign provides secure online payment options to facilitate online commerce. It purchased Cybercash that offered multiple payment solutions to its customers.
For the online retail markets to grow to their full potential, a standard and secure medium of exchange needs to evolve so as to reduce friction in the virtual global market place. With respect to the web, we need to develop a medium that becomes a standard to increase the participation rates of e-tailers and consumers. Since credit cards have taken a lead, they may become the standard. They do not facilitate micro transactions, which clearly would open up new markets that will be exclusive to the web. This is an area where we not only need to develop a medium to facilitate exchange, but also determine the likely goods (web content, music etc.) that will become viable for an online exchange.
3. Personalization vs. Privacy Issues – In an online environment, there is a conflict between the need for privacy on the part of the consumer, and the need to be able to personalize the offering on the part of the e-tailer (aimed at providing a better experience to the consumer). Finding equilibrium between the two is tricky. E-tailing solutions that can simultaneously address both the issues can make a significant impact on the growth of this segment. This also ties in with new payment systems that are developed, as the payment (transaction) involves an exchange of the critical data. Issues relating to the ownership of that data (after the transaction) and the rules governing the use of that data are important. Many upcoming companies are offering intermediary services focusing on certification of e-tailers and their use of the personal data collected from the customer during an online transaction.
Most current personalization solutions focus on personalization based on the user experience with the individual web-site. Systems need to be developed that allows for personalization across multiple web-sites or the entire web and the connection between the e-tailer and its physical presence in case the customer visits both.
Other risks associated with e-tailing include the security of the transaction and the integrity of the business with which the customer transacts. The customer is justified in being concerned with the security of the transaction data provided in an online transaction. Since the e-tailing environment does not provide the same assurance as the physical world in terms of the integrity of the business, e-tailers with an unknown brand name need to make extra efforts to make sure the customer has confidence in the outcome of the transaction and their integrity.
Multi-Channel Retailing – Challenges and Responses
|Inventory and order management systems are not integrated across all channels||Internally prioritizing integrated, multi-channel data management strategies|
|Customer data is not integrated or shared across all channels||Bringing in outside expertise to drive internal business process change|
|The dominant channel fears sales cannibalization||Creating an ROI-based case to gain more resources to integrate business processes|
|There are budgetary constraints to create integrated processes||Changing the organizational structure to be brand – rather than channel – specific|
|Channel specific, instead of brand-specific, merchandising organization||Changing compensation incentives to be brand – rather than channel – specific|
|Cannot change fast enough to keep up with customer expectations||Outsourcing programming to improve system integration|
(Source: Aberdeen Group)
4. Issues related to the portal design– Portal design plays a critical role in e-tailing. The overall design of the portal has been an issue as web designers often fall short of understanding this medium and its capabilities. Amazon has understood the importance of design, throughout the transaction, and went so far as patenting its “one-click” transaction rule. It is critical to focus on the transaction process flow. Presently, the customer is unable to view the entire transaction process without experiencing it first hand. It is observed that if the flow of the transaction creates a possible disconnect between the customer’s needs to complete the transaction, the customer will abort. (approximately 20 – 30% of transactions are aborted by the customers) A common problem with transaction flow design is the surprise shipping costs that e-tailers often do not calculate until the transaction is about to be finalized. Shopping cart technology is used to facilitate the online transaction process.
Design also plays an important role in selling goods that require experience. Since the web cannot facilitate experience for non-digital goods, other means need to be developed to encourage such transactions. For example, liberal return policies and risk-free return facilities encourage online shoppers to go for non-digital goods.
5. Issues related to the Ease of Access – A majority of consumers still find the medium of internet difficult to access and use. The adoption of broadband has been slowed down due to the last-mile connectivity issues. This has put a limitation on the ability to design the right e-tailing environment to encourage online transactions. Once online access extends beyond the PC, and mobile commerce (m-commerce) gains popularity, e-tailing access may see an exponential growth coupled with capabilities for contextual transactions developing an entirely new role for the e-tailing domain.
6. Legal Issues in a Global business environment – E-tailing extends beyond the national boundaries and connects a global audience. Rules for commerce, and its legal framework, have evolved within the geographically limited national and state borders. To facilitate the growth of e-tailing, a legal framework needs to evolve that makes sense for a global marketplace. This is perhaps the most challenging aspect to overcome in order to help the growth. Currently there is a moratorium on taxes (sales taxes) for e-tail transactions with businesses that have no physical presence. This puts the traditional retailers at a disadvantage and leads to the loss of a major source of revenue for the states and countries where such transactions take place.
Other issues, besides the taxes, that need to be addressed include the legal positions with respect to the use of data and the rules for conducting business in an online environment. While there are imbalances between these rules, around the world, it will limit the potential for a truly global market place that the web, as a medium, potentially develops. The World Trade Organization (WTO) is working on developing standards in these areas. Legal standards, across states and countries, are as important as business and technology standards in terms of allowing the online markets to thrive.
PACE (Pressures, Actions, Capabilities, Enablers)
|Priorities||Prioritized Pressures||Prioritized Actions||Prioritized Capabilities||Prioritized Enablers|
|1||Customer expectation of seamless purchase and delivery options across channels, continued pressures to improve operational performance||Improve operational excellence across all channels||Ensure product information and pricing is up to date and consistent across channels||Cross-channel content management and product information management|
|2||Increased cross-channel consumer research and shopping patterns||Allow customer to purchase, take delivery, or return a product through the channel of their choice||Synchronize customer and inventory information across channels||Real-time inventory and customer updates|
|3||Leveraging brand equity to acquire and retain today’s less loyal customer||Create single brand identity across all channels||Enable cross-channel fulfillment
Enable real-time views of cross-channel inventory
|Single operational data stores and data warehouses across all channels|
|4||Hyper-competitive multi-channel selling environment||Create customized service offerings to focus on micro-market segments||Cross selling and personalized promotions||Advanced web and in-store analytics available in real-time|
|5||Price is no longer a valid means of differentiation||Offer customized and unique product offerings||Consistent performance metrics across channels||Transportation management systems, returns management systems|
(Source: Aberdeen Group)
Understanding Consumer Behavior in E-tailing and Multi-Channel Retailing The consumer behavior towards the e-tailing and Multi-Channel Retailing is influenced by a variety of factors. Consumers often quote the channel, the organization, the product, and the consumer characteristics – to explain their preferences for using certain channels. The mixture of multiple factors that influence their patterns of channel use is complex and dynamic. The consumers actively consider the channels that will suit them the best, and how they can achieve a maximum outcome for a minimum of costs. In doing this, they often do not use the channels in the way its providers had originally intended.
The various factors that determine the consumer behavior in an online retail environment comprising of e-tailing and Multiple-Channel Retailing are discussed below:
A – A consumer’s trust in an Internet shop varies in proportion to the perceived size of its physical store network. An online consumer is more likely to trust a large sized business in comparison to a small sized business owing to the trust.
B – A consumer’s trust in an Internet shop varies in proportion to the perceived reputation of its physical store network. Reputation is defined as the extent to which buyers believe a company is honest and concerned about its customers. Consumers may have more trust in a retailer with high reputation because a trustworthy retailer is less likely to jeopardize his reputation assets.
C – A consumer’s trust in an e-shop of a multi-channel retailer varies in proportional to the perceived privacy at the e-shop. Concerns of online privacy have increased considerably and are a major impediment to e-commerce. Consumer privacy assumes significant importance on the Internet. The consumers are concerned about how their personal data is collected and used by a marketer
D – The quantum of risk perceived by a consumer at an e-shop of a multi-channel retailer reduces the consumers’ trust levels. Trust is closely related to risk in the consumers’ mind.
E – While buying from an e-shop of a multi-channel retailer, the perceived risk is inversely proportional to the consumer’s purchase intentions of shopping at the particular e-shop. The theory of planned behavior suggests that a consumer is more willing to buy from an Internet store that is perceived as low risk.
While the loose ends of the retail sector are being tied up, e-tailing has emerged as a promising avenue and caught the attention of many entrepreneurs. This could very well be the beginning of an e-tail revolution. As the new phenomenon emerges, it should be understood that retailing is a serious business.
With an increasing popularity and acceptance of Internet around the world, e-tailing is assuming increasingly greater significance. A number of products and services are on e-tail offer and novel plans are being worked out by many e-tailers. So, the dilemma continues: to retail or to e-tail?
However, if we dig deeper, the comparison and contrast between retailing and e-tailing, and the differences in the way business is conducted in both the segments should become clearer.
While the conventional retail is location-specific and the retailer is restricted to a particular location, an e-tailer operates on a global scale. Being local in nature, a brick-and-mortar retailer has to identify a good location for his operations and wait for the customers. On the other hand, an e-tailer has to virtually attract a customer to his site and offer him exemplary services. In fact, location is no longer the key to success if e-tailing is what we are talking about. Thus, while the target customer remains the same in both the categories, the mode of conducting business is changing dramatically.
There is another distinct challenge thrown in by e-tailing. An e-tailer has to invest significant resources in retaining a customer who has shopped through his site. In the conventional retailing, almost half of the initial investment could go towards acquiring the real estate. Afterwards, a retailer has to spend considerable money, effort and time in setting up his shop, stocking inventory and creating display patterns. However, customer retention is not such an issue in conventional retail as compared to the e-tailing mode.
Customer retention: The holy grail of e-tailing Customer retention poses a significant challenge to the e-tailers. The primary aim of every e-tailer is to attract a prospective customer to his e-tail site. This requires significant resources in terms of the ad spend. Naturally, there has been a surge in online advertising in countries such as the United States. Online ad spends have grown so large that as much as two-thirds of the capital raised by online companies go towards advertising. Ad spends by online companies have grown do large that all the savings achieved in the areas of real estate and inventory are more than offset by a manifold increase in the marketing and promotional ad spend.
After considerably large ad-spend, will the customer remain loyal to the e-tailing site?
The question still remains answered. We can see that retaining an e-tail customer is an expensive proposition. The underlying reason is that in the online world, customer loyalty does not exist.
Changing economics In the US, it has been observed that the traditional retailers, despite the strength of their brand equity and their existing relationships with suppliers and customers, find it extremely hard to compete online. This phenomenon is attributed to the vast difference between the conventional retailing and the e-tailing segments.
The online media offers a host of advantages that may tilt the economics in its favor. The online medium could transform much of the traditional economics of conventional retailing. While a physical store caters only to a particular locality, the Internet reaches out to the world. The obvious fallout is that the e-tailer can go for a bigger and wider audience and still be in touch with individual preferences.
The e-tailing route calls for a re-examination of the conventional retail value chain. The electronic media such as the Internet and the mobile phones make it possible to do away with a significant portion of the traditional value chain altogether, replacing it with direct sales by manufacturers to the consumers. There is another side to the story. According to retail analysts, online retailing also creates new points in the conventional value chain.
The economics of the Internet also offers a powerful first mover advantage to the retailer. An e-commerce operation on the web can be scaled up at a low cost in such a way that is almost impossible for its physical equivalent. And even among the different e-tailers there is the first mover advantage. If the first mover gets everything right – its website, its order fulfillment and distribution – a newcomer might find it much harder to beat an established player at the game. For example, Amazon.com got the first mover advantage in the online book retailing segment.
What will work? The million dollar question is: what kind of retailing model will deliver in the online sphere? To arrive at an answer, consider the following. The most important cost advantage of e-tailing comes from minimal costs on the physical infrastructure and the elimination of intermediaries leading to an economical distribution.
In case of book e-tailing, it allows doing away with big shops stuffed with slow-moving stock. Consider the case of Amazon.com, where the orders are routed straight to the wholesaler. This implies that the working capital costs are cut down drastically. Moreover, an e-tailer is paid before he makes payment to his distributor. This significantly reduces the working capital requirements.
However, one has to compare these gains against certain web-related costs that have to be borne by a retailer. Setting up and maintaining a website requires considerable investments both in terms of the money as well as the time. The logistics and distribution parts of an e-business are of utmost importance and that is where many e-tailers go wrong.
The emergence of the unconventional retail channel does not pose any threat to the traditional retailing. Alternate retail channels will have to co-exist with the traditional retailing channels.
Even the large and successful e-businesses such as Amazon.com have accepted this fact and are setting up distribution warehouses for the same reason.
As the combination of retailing and e-tailing set to deliver the goods, the trend of using the Internet as another service medium will gradually catch up with the masses.
Conclusion Retailers have always been subject to enormous competitive strain and the commonly perceived solution is to add ‘e’ to the business model in an attempt to capture the attention of a global shopping audience. Such an initiative results in no more than an additional channel and the successful company must have more than an electronic distribution medium – it must continue to provide what its customers want.
We are witnessing the tip of the iceberg. Such is the growth potential in the e-tailing industry that it is difficult to quantify the industry’s size or growth. There are pros and cons in both the cases, be it conventional retailing or e-tailing. With so many hurdles around for e-tailing, it would take time before it really catches up. But, the trend has surely begun. In the future, we will see a peaceful and complementary co-existence of conventional retailing and e-tailing.