ELECTRONIC COMMERCE:ELECTRONIC COMMERCE AND RETAILING

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ELECTRONIC COMMERCE AND RETAILING

The most prominent electronic commerce application is the use of the Internet for consumer retailing that will change a firm’s relationship with its customers. With the growth of online retail activities, the Internet challenges not only the survival of established retail outlets but also the very mode of transactions, which in physical markets occur through face-to-face seller–buyer interactions. Online retailers such as Amazon.com, Dell, and Garden.com (http: / / www.garden.com) cater to customer demands and increase revenues rapidly without opening a single retail outlet. Online shops offer consumers convenience and price advantages, critical decision factors in many retail industries.

Other observers remain skeptical about consumers abandoning their daily trips to stores and shopping malls in favor of online shopping. Physical inspections of goods, personal interactions with sales representatives, the sheer act of going to a mall with friends, and other characteristics of shopping in the physical world may limit the growth of electronic retailing. However, regardless of the future extent of electronic retailing, Internet technologies have shown that they can not only make shopping more convenient but also reorganize the retail industry to meet new demands and new desires of customers.

Web Storefronts

The Internet is the most efficient information exchange medium and interactivity tool ever to impact the retail industry. The distinguishing factors of online retailing reside in offering customers useful product information and responsive customer service in all phases of their shopping experience. Applications addressing these functions tend to be maximized by new entrants in the market. For

example, Amazon.com, having no physical retail outlets to worry about, has designed a store im- proving the range of product and product information to match customer needs and offering fast and efficient shopping service. In contrast, players in existing retail markets are concerned with protecting their existing channels. Most retailers open their Web stores either to keep up with competitors (28%) or to explore a new distribution channel (31%) (Chain Store Age 1998). About 40% of retailers use their Web stores in an effort to extend their business into the virtual market.

The exceptional growth of online retailing in the United States can be traced back to several favorable characteristics. First, U.S. consumers have long and favorable previous experience with catalog shopping. Second, credit cards and checks are widely used as a preferred payment method, making it easy to migrate into the online environment. More importantly, commercial infrastructure and environment of the U.S. markets are transparent in terms of taxation, regulation, and consumer protection rules. Consumers also have access to efficient delivery networks of Federal Express and United Parcel Service in order to receive purchased products on time and in good condition. These auxiliary market factors have been essential in the initial acceptance of Web-based commerce.

E-Retailing of Physical Products

Online retailing often refers to a subcategory of business that sells ‘‘physical’’ products such as computers (Dell online store), automobiles (Auto-by-tel), clothing (Lands’ End online), sports equip- ment (Golfweb), and flowers and garden tools (Garden.com). Currently, books and music CDs fall into this category, although retailers are becoming increasingly aware of their digital characteristics.

Electronic commerce in physical goods is an extension of catalog selling where the Internet functions as an alternative marketing channel. In this regard, online shops compete directly with physical retail outlets, leaving manufacturers to juggle between established and newly emerging distribution channels.

E-Retailing of Digital Products

Retailers of digital products have a distinct advantage over other sectors in that they deliver their goods via the Internet. Sellers of news (e.g., The New York Times [http: / / www.nytimes.com]), magazines (BusinessWeek [http: / / www.businessweek.com]), textbooks (SmartEcon [http: / / www. smartecon.com]), information, databases, and software can provide products online with no need for distribution and delivery by physical means. This sector also includes such search services as Yahoo, Excite, and other portals, although these firms currently rely on advertising revenues rather than pricing their digital products.

A number of online retailers are selling physical products that are essentially digital products but currently packaged in physical format. For example, Amazon.com sells printed books, which are in essence digital information products. Likewise, audio CDs and videos sold by Amazon.com and CDNow (http: / / www.cdnow.com) are digital products. Because digital products can be transferred via the network and are highly customizable, online retailing of these products will bring about fundamental changes that cannot be duplicated in physical markets.

For example, instead of being an alternative distribution channel for books and CDs, online stores can offer sampling through excerpts and RealAudio files. Books and CDs are beginning to be cus- tomized and sold to customers in individualized configurations (see Figure 2), downloadable to cus- tomer’s digital book readers or recordable CDs. Digitized goods can often be delivered in real time on demand. These functions add value by providing consumers more choices and satisfaction. The primary retail function is no longer getting products to customers at the lowest cost but satisfying demand while maximizing revenues by charging what customers are willing to pay.

E-Retailing of Services

A growing subcategory of electronic retailing deals with intangible services such as online gaming, consulting, remote education, and legal services and such personal services as travel scheduling, investment, tax, and accounting. Online service providers are similar to digital product sellers because their service is delivered via the Internet. Nevertheless, transactions consist of communications and interactions between sellers and buyers, often without an exchange of any final product other than a receipt or confirmation of the transaction.

A much anticipated aspect of online service delivery involves remote services, such as telemed- icine, remote education, or teleconsulting. The future of remote services is critically dependent on the maturity of technologies such as 3D and virtual reality software, video conferencing on broader bandwidth, and speech and handwriting recognition. Advances in these technologies are necessary to replicate an environment where physical contact and interaction are essential for providing personal services.

Despite a low representation of remote services on today’s Internet, several types of service retailing are currently practiced. For example, 2 of the top 10 online retailing activities—travel and financial services—sell services rather than products. Airline tickets are digital products that simply

Electronic Commerce-0031

represent future uses of airline services. An airline ticket, therefore, signifies a service to schedule one’s trips. Likewise, products in online stock markets and financial services are entitlements to company assets and notational currencies. Online service providers in these markets include those in investment, banking, and payment services.

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