What We Have Learned About B2C Electronic Commerce Dr. Bert Rosenbloom Professor of Marketing and Rauth Chair in Electronic Commerce Management Drexel University, USA - PowerPoint PPT Presentation

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What We Have Learned About B2C Electronic Commerce Dr. Bert Rosenbloom Professor of Marketing and Rauth Chair in Electronic Commerce Management Drexel University, USA

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Companies become incidental to the stock price ... McKinsey & Co. Study -- 4 times higher customer acquisition cost for online vs. offline ... – PowerPoint PPT presentation

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Title: What We Have Learned About B2C Electronic Commerce Dr. Bert Rosenbloom Professor of Marketing and Rauth Chair in Electronic Commerce Management Drexel University, USA


1
What We Have Learned About B2C Electronic
Commerce Dr. Bert RosenbloomProfessor of
Marketing and Rauth Chair in Electronic Commerce
ManagementDrexel University, USA
2
B2C E-commerce in the U.S. will grow to 87
billion by 2003 from 17 billion in 1999
  • B2C E-commerce worldwide will approach 200
    billion by 2003

3
Even though substantial growth will occur, 95
of pure play dot-coms are expected to go out
of business by 2003
  • Of those remaining only a small minority will be
    profitable

4
Much of the online B2C sales volume will be
generated by conventional (bricks and mortar)
retailers using the Internet asjust another
marketing channelto reach their customers
  • Clicks and Mortar

5
Online Sales (1999)Pure E-tailers vs.
Multichannel Retailers
Source (Business Week E-B2 10/23/000EB 36)
6
What have we learned so far about what works and
what does not work in B2C E-Commerce?
  • Lets take a look...

7
Real Businesses Still Need to be BuiltThe
Dot-Com Formula
  • First Mover Advantage for quick name recognition
  • Get maximum number of eyeballs to visit Website
  • Convert eyeballs to paying customers
  • Then figure out how to make a business out of it
  • It Doesnt Work
  • Internet is good for communication with existing
    customers but terrible for attracting new
    customers

8
Focus on Customers Not Investors
  • Dot-coms more interested in attracting investors
    than customers
  • Companies become incidental to the stock price
  • Greater fool theory and momentum investing --
    dumb money
  • Huge market caps created -- but little if any
    customer value developed

9
Differentiation Crucial for Survival
  • Online sales of many consumer product categories
    will grow in excess of 50 annually over the next
    2-3 years. (Forrester Research)
  • Yet
  • 95 of the worlds dot-com companies will fail
    during the next two years. (Gartner Group)
  • Most basic cause of death?
  • Lack of differentiation - Failure to stand out
    from the crowd (Business 2.0)

10
Customer Acquisition Costs Too High
  • In the U.S. in 1999, e-tailers spent 110 of
    revenues on marketing
  • Average cost of acquiring each customer was
    84.00 but 200 per customer was not unusual
  • Expensive TV ads not cost effective
  • Banner ads are not effective--- little click
    through
  • Name recognition and synergy needed from
    land-based retailers (clicks mortar)
  • McKinsey Co. Study -- 4 times higher customer
    acquisition cost for online vs. offline

11
Better Website Design Needed
  • Too often function is sacrificed for flash
  • Designed by techies rather than marketers
  • Surveys find that 50 of customers go directly to
    search button to find products
  • Website design must begin with understanding of
    consumer behavior
  • Just 22 of customers who put items in their
    electronic shopping carts actually purchase 78
    abandon their carts

12
Merchandising Expertise Vital
  • Selecting the right products to sell is still an
    art and a science (cannot escape retailing)
  • Items with higher gross margins needed for
    e-commerce
  • Wider selection creates inventory problems
  • Amazon.com wrote off 39 million for unsalable
    merchandise in 1999

13
Reliable and Efficient Fulfillment Systems Key
  • Online shoppers expect dependable and quick
    shipment
  • Small order fulfillment is expensive especially
    when labor intensity is high
  • More automated warehouses needed to increase
    efficiency and lower costs

14
Back End at Least as Important as Front End
  • E-commerce and E-tailing cannot escape
    fulfillment and logistics
  • Arthur Andersen study found over 40 of
    deliveries to customers were late

Back End Problem Area (1999 Holiday) of
Consumers Mentioning Untimely Delivery 40 Pro
duct out of stock 24 High shipping
handling costs 21 Long shipping
time 18 Slow email response 10 _________
___________ Source Jupiter Communications
eMarketer
15
Customer Service is Crucial
  • Pure Internet shopping is a myth
  • Must have actual people (customer service
    representatives) whom customers can reach easily
    by telephone and/or e-mail
  • Lands End has 2500 customer service
    representatives to answer questions by phone or
    e-mail
  • Perceived risk of shopping online results in
    almost 80 of customers not completing purchases
    online
  • If just 10 of online abandoned shopping carts
    could be salvaged through better customer
    service, over 60 billion in lost sales could be
    recovered (Datamonitor)

16
Returns Problem Needs to be Addressed
  • Returns involve reverse logistics

Study conducted by Electron Economy of 60
leading Websites found the following 80
required customers to pay return shipping 49
provided return postal bags and preaddressed
return labels with order 28 required Return
Merchandise Authorization (RMA) Customers did
not need permission to purchase an item, so why
should they need permission to return
it. (BUSINESS 2.0 10/10/00181)
17
Internet Has Not Caused Intense Price Competition
  • Online Comparison Shopping Services (shopping
    bots) have not been a major force
  • Dealtime.com
  • BottomDollar.com
  • PriceScan.com
  • MySimon.com
  • Consumers do not use shopping bots regularly
  • Real-time searches yield slow and unreliable
    information
  • Database searches faster but often not timely
  • Consumers seek other factors reputation,
    reliability,
  • speed, and service

18
Banner Ads Not EffectiveOnline advertising
growing dramatically - from 3.5 billion in 1999
to 16.5 billion by 2005But
  • Click-through rates now only 0.3 - 0.5
  • Far below direct mail response rate of 1 - 3
  • Online advertising may need to focus more on
    brand awareness

19
Privacy is Becoming a Major Concern
  • The dark side of e-commerce
  • The same technology used to cut costs and enhance
    communication can leave a trail of personal
    information
  • Cookies -- may provide information consumers do
    not want revealed
  • Regulations may emerge which while protecting
    privacy may limit flexibility of e-commerce

20
Use Clicks and Bricks toCreate Synergy
  • Pure plays not economically viable
  • Promotional costs too high for pure plays vs.
    multi-channel firms
  • (pure play) Etoys 37c in promotion per dollar
    of sales
  • (bks. mtr.) Williams-Sonoma 11c in promotion
    per dollar of sales
  • Order processing costs too high for pure plays --
    too many onsies and eachies

21
Products Need to be Internetable
  • Physical products cannot be digitized
  • Physical products have size and weight and take
    up space
  • Physical products need to be selected, packed and
    shipped
  • Physical products are transported at slow speeds
  • Internetable products are those that have a high
    value to weight or size ratio

22
Clicks-and-Mortar Firms Have the Advantage
  • Channel Conflict evolving into Channel
    Confluence
  • Real power of Internet may be as a supplemental
    channel rather than exclusive channel
  • Synergy and higher revenue results from offering
    customers multiple channels

23
Bricks and Mortar Retailers Here To StayOnline
Retail Sales as Percentage of Total Retail Sales
Source Jupiter Research
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