E-tailing in Today’s Market



Click and Brick: Retailing Realities for the Future

Balasundram Maniam*, Sam Houston State University

Claudia S. Davis, Sam Houston State University

Gurinderjit B. Mehta, Sam Hosuton State University

Sanjay S. Mehta, Sam Hosuton State University

Department of General Business and Finance

Sam Houston State University

P.O. Box 2056, Huntsville

Texas 77341-2056, USA

Abstract: This article describes two approaches to selling, the “brick and mortar” type of retailing and the E-tailing marketing approach on the Internet. The growth of the new companies on the Internet has newcomers and established companies rushing to enter the “promised land” of the Internet. Companies and consumers use the Internet to research their purchases, service, and competition. This article shows the similarities and the differences of these two approaches, the pros and cons of marketing, and how many companies are successful and others fail. In summary, this article shows the most effective ways to become successful and stay successful is to develop a combination of each of these methods.

Key –Words:- E-Commerce, Internet, E-Tailing

Introduction

The sales potential of the Internet, will approach $8 Trillion U.S. by the year 2004 (Davis, Buchanan-Oliver, Brodie, 2000). Convenience is the key to the Internet’s strength. It is available on demand 24 hours a day, seven days a week. Surfing and browsing the Internet has become in itself a popular form of entertainment, recreation and education. The Internet is like the Gold Rush in the 1800’s while others believe it is like China, invest now for the future with not much or any value today (Bloch, Pigneur, and Segev, 1996). A survey as recent at 1996 indicated that of the top 100 retailers, 91 percent had an Internet “address” (called a URL) but only 64 percent actually engaged in e-commerce on-line. The average business that did have an Internet presence limited their focus to describe the company and improve investor relations. Most of these retailers used the Internet as a medium for communicating information and for promotional reasons rather than conducting sales transactions (Morganosky, 1997). A review today of these same top-100 retailers shows one can shop on-line, view the product, view comments or reviews from other purchasers, and compare pricing with other retailers. Retailers are finding ways to add value to their sites by running daily specials, issuing online coupons for repeat orders, and offering special shipping for large orders. Higher margins have never materialized and prices have come under pressure, but traditional retailers are on the brink of reaping big rewards from the Internet.

2. Basic E-Tailing

A fundamental idea about e-tailing (i.e. electronic retailing) was that higher margins would be the order of the day. Operating costs should have been lower with the lack of needing to maintain a “brick and mortar” store. The Internet retailer would be able to operate out of a central location, require fewer employees, and physical delivery would be outsourced. Many of these employees would be either classified as material distribution or clerical in nature removing the need for a sales staff (Morganosky, 1997). Distribution centers would be more efficient since there would be no initial distribution to the “brick and mortar” store but disseminated directly to the consumer. Inventory could be controlled closer with no stock out in retail outlets to worry about (Palmer, 1997).

Five years later, it is obvious now that these things have not yet materialized. More distribution centers are required to hold down shipping costs and speed delivery. Customers not accustomed to dealing with the manufacturers or wholesalers are requiring a level of sales personnel to help them with their orders. Consumers initially were using the Internet companies as an electronic catalogue and pricing research tool. Many savvy consumers use the on-line catalogues to determine which product met their needs then researched the consumer reviews for problems or defects. The new dot-com companies experienced many “hits” (persons reviewing their site-URL) but sales would not consummated. The promises of higher profits have not been realized because consumers would still purchase by more convenient methods.

3. Classification Of Internet Retail Stores

Internet retail stores have various types or styles of outlets. The level of service and support to the consumer classifies these basic types. The basic types of retail classifications are:

• On-line store fronts – companies that have “brick and mortar” stores and may sell items similar too or the same as their physical outlets.

• Catalog sales – may be a company that does not have a physical store but sells by catalog on-line and by direct mail solicitation, such as a specialty company that sells fine art or jewelry from the Boston Fine Arts Museum to areas outside of Boston.

• Content sites providing information and support – may sell items but their main goal is to give logistical or technical support of goods and services, such as Microsoft technical support or Hewlett Packard computer/hardware technical support.

• Web traffic control sites, such as malls and search engines – example would be that has retail sales but only through other Dot Com companies. Directing consumers to specific sites that sell products or services generates their sales and profits.

The retailer’s intention can be determined by the focus of the Internet site. Each of these distinctive site types has the ability to either generate sales or advertising revenues (Spiller and Lohse, 1998).

Marketing Strategies On The Web

Some retailers wish to expand the overall market penetration to markets in which they are not currently active. These retailers typically do not intend to offer a broad based discount strategy but instead rely on their name recognition and status of the product. Service to the consumer is important but is not directly attributable to the price. Examples of these are Neiman Marcus, Nordstrom, or Tiffany’s.

Another market strategy stresses volume business and is heavy into discounts. These retailers focus on pricing over product. Service is not their main focus. Their product line tends to be very broad; Sam’s Club or Best Buy are examples of this type of retailer and may or may not have a “brick and mortar” store but are tied directly to a store of another name.

The last marketing strategy focuses attention to service and product with price being a fixed constant. These businesses have a unique product that may require service or technical expertise. These retailers have a fixed market base with a specific customer base. Micro Centers, Smith & Wesson firearms, and Microsoft are examples of unique product companies that may require a high level of expertise.

J. C. Penney Co., which has been selling online since 1998, is seeing incremental sales growth per customer by offering shoppers three ways to buy: stores, catalogs, and online. Customers who shopped all three channels spent $1,000 last year, about four times more than people who shopped in just one channel (Green, 2001).

4. Market Awareness

Market awareness is paramount for retailers on the Internet. Finding a retailer on the Internet may be the difference between success and failure. A savvy computer oriented consumer may have the ability to use a search engine to find the product or company in which they are interested. Most consumers may use the dot com method but this may limit accessibility of newer companies entering the market as the .com domain is full or the name of the company may be already been purchased in that domain. Many retailers wishing to improve exposure will add their Internet site location in direct mail campaigns, catalogues, on the sides of delivery vehicles, and inside of “brick and mortar” places of business.

5. Virtual Shopping

The more innovative concept, whether it is a new idea, new product, or new promotion, the greater the risk. Traditionally, companies use marketing research to minimize the risk (Burke, 1996). Technological advances into virtual reality and alternate media have improved research techniques and opened larger cross-sections of consumers. Virtual shopping has the ability to limit the distribution of products to “brick and mortar” stores before testing the marketability of a product or service. Traditional marketing in a “brick and mortar” business yields a traditional purchase if it appeals to the consumer. The limitations on this type of marketing are dependent on the appropriate product being marketed to the consumer and the sales are limited to inventory on hand at that location. If the item appeals to the masses, then the sales continue until the inventory is depleted or reordered. A “brick and mortar” business with an Internet marketing site can utilize the site to beta test new items and serve as a backup to reallocate items from one sector of the country to another when products may sell better in one market or the other. This business will be able to take advantage of the Internet in testing products but also have a physical site for marketing of the products. An Internet only business must rely on curious consumers or piggy-back marketing with other sites for new items. Sales are limited by exposure and the consumers’ inability to physically touch the product and may be at a disadvantage. In reviewing each of these types of businesses, it is apparent that the integration of the Internet with a traditional “brick and mortar” business has a marked advantage over the Internet only or “brick and mortar” only businesses (Fig. 1).

Figure 1

Integration of Internet Business with a Brick & Mortar Business

The above figure (Fig.1) indicates the advantages of the integrated businesses. The flexibility of the integrated Internet and “brick and mortar” business or “click and brick” companies offers consumers more accessibility to local markets and the larger Internet or worldwide market. This is valuable to consumers in small towns or remote areas without access to regional malls or large cities. All consumers have equal opportunities to purchase from the fashionable and upscale retailers. The specialty stores and mega-retailers can now offer, via the “click and brick” retail combinations, to a larger market share without expanding the very expensive physical outlets.

New Marketing Paradigm

Traditional mass marketing communications exists in the form of direct mail, billboards, newspaper, radio, and television advertising. The key to this type of marketing is to inform, persuade, and retain the actual or potential customers and get the message across. Marketing on the WWW requires the consumer to actively seek out the site or be drawn to the site by curiosity or by interactivity. The goal of the new marketing paradigm is to seek out the consumer using traditional communications and blend in with the new Internet marketing tools to attract and excite the consumer. A combination of these marketing techniques, “click and bricks”, will yield a superior marketing package. Using the Internet site to promote the locations of the “brick and mortar” businesses have also shown to increase in traditional business with consumers that want a product immediately (Green, 2001). The “click and bricks” business has an advantage in the beta marketing of products and the ability to react to shifting market share of products. Further, they may move items around to focus on regional demand and fill in gaps in their marketing strategy. The most important aspect of the “click and bricks” technique from a marketing perspective is the manner in which the Internet transforms these marketing functions. Informational and the image of having an “Internet presence site” drives the new marketing paradigm and ultimately the consumer (Hoffman, 1996).

6. Wakeup Call To Dot Com Industry

Basic marketing indicates that if the marketers cannot provide the time and place utility to customers that they may lose interest in the purchase. Some Internet sites are very “busy” and require long periods to load. This delay may be exacerbated by the browser’s limitations and timeout function. This function interprets the long period required for loading as a problem and will disconnect from the site being loaded. The creativity of a Web site may contribute to the long loading and make it difficult for the browser to navigate through the Web site. Internet marketers must remember the old saying, “Keep it simple.” The navigation throughout the web site is also a key. Software upgrades have improved searches and chopped 10 seconds off the time it takes for some pages to appear (Brown, 2000). Long periods of loading and difficulty in using common Internet computer functions, such as the back, reload, stop, and refresh buttons, may cause fatal errors and conflicts with the consumers computer program. The average Internet access provider still uses dial-up serves and the availability and affordability of cable modems and DSL access is still very limiting. America on-line still boasts to be the largest Internet access provider with Microsoft (MSN) rapidly closing the gap between these dial-up servers (Hillis, 2001). This competition has kept the growth and viability of dial-up providers strong. Web site administrators and constructors must deal with these issues to insure a smooth transition and ease of use of the web site.

Profitability of Internet only marketers has been a big disappointment for many start-up companies. The Internet only basis of these start-ups was doomed from the beginning mainly due to the lack of exposure or heavy requirements for initial capital outlay left these types of companies with a large debt that many could not overcome. Even for the big companies that started out with a large amount of venture capital, such as , the road has been very rocky. The combination of “click and brick” business ventures has proven to be the optimal type of marketing platform.

Price Of A Customer

All marketers must conduct a cost-benefit analysis of the cost of acquiring one customer and must be weighed against the potential for those customers’ sales. “The cost of gaining each customer is around $6 for e-mail, a third the cost of direct mail, market researcher Jupiter Communications estimates” (Businessweek, 5-2000). E-tailers fall into poor pricing practices such as rampant discounts, free shipping, and the desire to sell anything. Success is measured in terms of sales rather than profits. Many e-tailers sell things below cost and try making up the difference by selling advertising space. The space is normally purchased by other e-tailers and that will cause the overall e-tailing market to show poor returns on investment dollars. Jupiter Communications found that 41% of online buyers were happy with dot-com customer service. Improving service by calls to online shoppers on customer service lines has improved sales of some retailers by more than 60%. Repeat customers account for 76% of some e-tailers orders (Businessweek, 5-2000). The Internet creates a more price-sensitive shopper. The free flow of information enables people to be more price conscience. The important point, though, is that this price pressure does not only have an effect online – it also affects real-world prices and margins (Green,2001). When networking is so prevalent all profit margins will come under attack. Companies cannot avoid this attack by not selling their wares online.

Disaster Turns The Corner

The 1999 holiday season was a disaster for Toys ‘R’ Us, with its online services turning Scrooge and leaving kids crying by the empty Christmas tree. Gifts did not turn up in time and this was an example of an e-tailer unable to keep up with delivery or demand. Toys ‘R’ Us formed an alliance with to sell its toys online via networks. Toys ‘R’ Us one year later is basking in the glow of strong earnings – up 21% in the Christmas, 2000, quarter and 16% for the full year (Newborne,2001). Toys ‘R’ Us were humbled by the fact that they were not able to master e-tailing on their own but in turn healed their wounds with profits. Not only has Toys ‘R’ Us posted a strong season, but it has also had the last laugh over eToys, which filed for bankruptcy on March 7, 2001 (Neuborne, 2001). Strategic alliances of this type are new to retailing and exemplify the impact of the Internet. In the new arena of the Internet, rivalries have developed but alliances look more attractive all the time.

Attracting And Keeping The Customer

Some brick and mortar companies are relying on their brand names to attract new customers. Other large retailers are offering low-cost or free Internet services to attract first time online customers (Hillis, 2001). The attraction of the Internet still remains convenience and low prices. Straying off this course will tend to discourage the consumer and miss the opportunity for the sale.

Electronic payment ability appears to be key to the success of the individual company. Many of the companies were “grounded” by their own limitations and tended to have slow sales or no sales (O’Keefe, O’Conner, Kung 1998). An e-tailer that required payment by methods other than electronic tended to slow the sale to the point of losing the sale. Secure transactions across the Internet are a prime concern for many potential customers. Secure credit card transactions over the Internet require cooperation between the credit card company, the e-tailer, and the consumer. Encryption of data is required but the success of encryption relays on the ability of the parties to exchange information, interpret the information, and keep the information secure. “In particular, by often making it necessary to separate the settlement from the informational and contracting steps in an acquisition, the security concern is a serious obstacle to consumer-oriented E-commerce” (Zwass, 2000).

10 Customer Relationship Management

Use of the “click and brick” approach to customer relationships allows for the business to react to changes in consumer focus more rapidly. The use of an Internet based business sector will allow for the shopping and interest levels of a consumer to be actively measured. This can be done by the use of “cookies” which is an electronic data collector between the on-line visitor and the “site” or URL. The “cookie” collects data from the visitor on where in the site the visitor reviews, how long at that site, and communicates between the URL and the visitor. These “cookies” can be used to compile the data and popularity of a specific sector and how in-depth the visitor checked the site. This can be used to review the attractiveness of the items or how a beta test item is received. Also help in the ability of the company to enhance the site to visitors’ satisfaction and keep the “click and brick” on track with their customer. It will assist the “click and brick” with strategic planning and help build the relationships and create a value with the consumer, thus helping further assisting the company with discovering what the buyer wants and providing that consumer with the objectives desired. Buyer and seller focus will be enhanced to the point of mutually satisfying exchanges and yield higher sales and profits.

11 Conclusion

Strategic partnerships between web-based businesses and “bricks and mortar” companies will benefit both entities. The ability to establish your e-tailing business can only be enhanced with strong partnerships. A web-based business could market the goods online and handle customer service. A leading “bricks and mortar” company would select merchandise and negotiate volume discounts with vendors then place those items in a strong technological platform that is capable of handling millions of customers. This would expand the strong points of each company allowing for a strong partnership.

A “brick and mortar” company with online services, storefronts, and catalog sales has the greatest chance for retail survival in the emerging e-commerce. The theory that retailers should identify the 20% of customers who provide 80% of the profits and market specifically to them would have to be altered to a specific marketing focus. The ability of technology will allow for the 20% of each of the 3 types of sales strategies- online, storefront, and catalog sales to be identified and change the marketing strategy to focus on these customers. For example, why send a catalog to someone that has never bought from a catalog and instead visits the store. Why not send out a small flyer or post card with specials listed and the Internet site to be visited. There are many ways to limit the use of the advertising dollar and focus on your primary audience.

Offering previously unknown services and items can help to improve margins and make customers more brand loyal. The hard to find item or advanced orders for upcoming products is a way of increasing loyalty of the consumer. Franchise businesses may offer specials and sole source items to customers to improve margins.

Finally, the use of all three types of marketing tools will insure the success of the marketer:

• Online – a Dot Com presence with various facilities, such as product sales, new items, services, technical support, and a gate way to a separate URL that focuses on investor relations and review of the company.

• Storefront – the “brick and mortar” outlet where the consumer can look, touch, and test a product prior to purchasing. Very useful for immediate sales or if out of stock at that location, then the consumer may purchase on-line.

• Catalog – the ability to combine on-line sales with direct-mail advertising.

The stand-alone e-tailer that has but one outlet, the Internet, will not be able to hold their margins and will follow the path of so many others that have come before them, bankruptcy. Advise from Robert Labatt, research director at Gartner Group, a tech consulting firm, the reality for pure-play retailer’s (Internet only businesses) is “Investigate a brick and mortar partner.” (Brown, 2001). Every retailer can take advantage of the Internet and forming alliances can be very beneficial to all parties. Integration of businesses is the wave of the future and the e-tailer needs to consider all its options.

References

[1] Bloch, Michael, Pigneur, Yves, Segev, Arie. On the Road of Electronic Commerce – a Business Value Framework, Gaining Competitive Advantage and Some Research Issues, The Fisher Center for Information Technology & Management, University of California, Berkeley, March 1996, pp. 29-48.

[2] Brown, Jeanette. Can Bring Back Its Blue-Ribbon Days?, Business Week, Dec.12, 2000.

[3] Burke, Raymond R. Virtual Shopping: Breakthrough in Marketing Research, Harvard Business Review, 1996, March-April; pp. 120-131.

[4] Davis, Robert, Buchannan-Oliver, Margo, Brodie, Roderick J. Retail Service Branding in Electronic- Commerce Environments, Journal of Service Research, Vol. 3, No. 2, November 2000, pp. 178-186.

[5] Green, Heather. What Really Happened to the E-tail Revolution, Business Week : March 19, 2001, p. 26.

[6] Hillis, Scott. Microsoft tweaks organization to focus on Web services, Reuters News Service, 19:29 04-05-01.

[7] Hoffman, Donna L., Kalsbeek, William D., Novak, Thomas P. Internet and Web Use in the U.S.: Baselines for Commercial Development, Communications of the ACM, July 10, 1996, pp. 28-30.

[8] Hoffman, Donna L., Novak, Thomas P. A New Marketing Paradigm for Electronic Commerce, The Information Society, February 19, 1996, pp. 17.

[9] Morganosky, Michelle A. Retailing and the Internet: a perspective of the top 100 US retailers, International Journal of Retail & Distribution Management, MCB University Press,Vol. 25- Number 11- 1997, pp. 372-377.

[10] Neuborne, Ellen. Time for E-Tailers to Play Survivor, Business Week E. Biz: March 12, 2001.

[11] O’Keefe, Robert M., O’Connor, Gina, Kung, Hsiang-Jui, Early adopters of the Web as a retail medium: small company winners and losers, European Journal of Marketing, MCB University Press, Vol. 32, No. 7/8, 1998, pp. 629-643.

[11] Palmer, Jonathan W. Electronic Commerce in Retailing: Differences Across Retail Formats. The Information Society, 13:75-91, 1997.

[12] Shakeout E-Tailers, Business Week : May 15, 2000.

[13] Spiller, Peter and Lohse, Gerald L. A Classification of Internet Retail Stores, International Journal of Electronic Commerce, Winter 1997-98, Vol. 2, No. 2, pp. 29-56.

[14] Stone, Amey. Eight Options for Amazon, Business Week Online, March 22, 2001.

[15] Williams, Thomas. Realizing the potential benefits of real-time online data exchange, Supply Chain Management, MCB University Press, Vol. 2 Number 4, 1997, pp.134-136.

[16] Zwass, Vladimir. Structure and Macro-Level Impacts of Electronic Commerce: From Technological Infrastructure to Electronic Marketplaces, Foundations of Information Systems, . com/ business/mis/zwass /ecpaper.html, May, 1999.

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“Brick & Mortar” Business with Internet presence

Internet

Only Business

“Brick & Mortar” only business a.

Internet Purchase

Routine Purchases Staple items

Retail Purchase

Figure 1

Brick & Mortar only- no Internet presence

Internet only- example-

No retail presence.

Brick & Mortar with Internet presence- flexible with business capabilities in all market arenas.

Brick & Mortar with Internet presence captures the best of all benefits from two of the most popular arenas. Exposures and awareness from the two arenas create more traffic and hits on websites. This inturn creates possibilities of increased sales.

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