A Transactional Medium, Part 1
- Retail vs. Wholesale Transactions
- Retail vs. Promotion
- In-store vs. Non-Store Retailing
- Issues in Designing an Effective Retail Site
- Ease of Purchase
- Incentive to Purchase Now
- Applications of WWW for Transactions
- Changing the Limiting Factors for Retailing Reach
- Bringing Buyers and Sellers Together
- Business to Business Transactions
Retail vs. Wholesale
The primary focus of this section will be on retail transactions. A
retail transaction is a transaction with the final consumer. WWW also
facilitates wholesale transactions (all transactions that do not include
the final consumer) and these will be discussed under Applications of
WWW for Transactions (Business-to-Business Transactions).
Retail vs. Promotion
we discuss online retailing we should first clarify the difference between
promotion and retailing. Retailing involves the request of a transaction,
and in most cases allows for the close of a transaction, with the final
consumer. Promotion is used to
inform consumers about products and encourage them to purchase
products. Because WWW, which is the first "mass" transactional medium,
allows for both retailing and promotion to occur side-by-side on a
web-site (that facilitates transactions), the
differences do become blurry. It is important to note that retailing and
promotion are not mutually exclusive business applications.
It is also important to understand the differences between a non-store
retailing transaction versus a traditional store retailing transaction.
When a consumer goes to a store and purchases a product this is clearly a
retailing transaction. When a consumer purchases a product by calling a
1-800 number from a catalog this is still a retailing transaction, although
the transaction is closed outside of the medium that initiated the sale.
Popular non-store retailing methods include TV shopping (need to find out)
and mail order
retailing ($75 billion in 1996).
While both these media have developed a significant portion of the non-store
retailing dollar sales they have
fundamental flaws when compared with WWW (approx. $500 million, 1996).
Using WWW as the non-store retailing medium a company may offer the
consumer two options, to close the sale online, through the medium, or to
close the sale offline, perhaps through a 1-800 number or a fax
(currently 2/3rds of WWW transactions are completed outside the medium).
option is similarly to a catalog or TV shopping purchase. The first option
highlights a key advantage of WWW as a non-store retailing medium. The
customer can interact with the medium and make the purchase requests
directly with the medium
. Other advantages of using WWW as a retailing medium compared with
other retail environments include:
There are basic rules to effective design of consumer-oriented web-sites
regardless of whether the site is for retailing, promotion, customer
service or other business applications.
These have been discussed in both sessions 5 and 6.
- Consumers have control over accessing information when they want. A
web-site is available 24 hours a day, 365 days a year (advantage over all
other retail environments).
- It is very cost effective (inexpensive) to establish and maintain a
retail site (advantage over all other retail environments).
- WWW offers an immediate, global, presence (advantage over all other
- Consumers can query for extensive product information, enough to close
the sale (advantage over TV and catalog shopping)
The following design issues are specific to online
retail sites. They are derived from the need to resolve the following
- Ease of purchase
- Reason to purchase now
Online retailing is essentially a transaction between two computers,
the customer is unable to "see" the retailer. There are considerably less
barriers to entry in online retailing than any other form of retailing,
allowing for growth in non-conventional retail businesses utilizing WWW as
a retail environment.
These two issues create a critical need (more so than with any other form
of retailing) of gaining consumers' trust that the online retail store is
a legitimate retail organization.
Companies with strong brand names are
able to gain consumers' trust. The brand name creates familiarity with the
organization and hence reduces the reliance on online information to educate
the consumer about the product/organization. Smaller companies must take
additional steps to develop consumers' trust online. This can be achieved
Security (and perceived security) of the transaction is another concern
that the retailer needs to address. The customer's perception of
security is the issue. If the customer feels uncertain
about sending a credit card number to a computer s/he doesn't know, s/he
will not close a transaction online (a reason why online retailers must
always develop an offline purchasing option.)
It is important to realize that there has been no
documented case of fraud from an online transaction to date, and
consumers using a credit
card cannot be liable for more than $50.
- extensive product warranties, moving the risk of purchase from the
consumer back to the retailer.
- significant discounts to first time consumers (free shipping etc.), the
first transaction then creates the confidence the consumer initially
Once satisfied the customer is more likely to return.
- detailed information on the company including history, philosophy and
executive biographies with pictures. A seal of approval from a WWW
business that authenticates WWW retailers, eTRUST for example.
One possible solution to security concerns is to ask the customer to set
up an account offline,
one time. This allows the retailer to obtain all the sensitive information. The customer can then purchase products online without sending a credit card number
along with the purchase. The First Virtual
Payment System is an independent third party that performs the above
for both retailers and customers. Once a customer has registered with
First Virtual, s/he can make online purchases with any retailer which has
also registered with First Virtual, using a unique PIN number.
A number of companies are developing (have developed) secure payment
systems online. These systems use encryption technology to keep sensitive
information secure. Companies that are poineering this field include:
A second issue that the retailer must be aware of is the security of the
server itself. Firewalls must be in place to stop unwanted "guests" from
accessing sensitive information that is maintained on the server. The
area of transaction security will be covered in detail in session 8. For now, it is important to
understand that the issue of security is of real concern to the
Ease of purchase
It is very important that the online retailer makes the purchase as simple
as possible. Since this is a new retailing environment customers need to
adopt new buying behaviors. The online retail store should allow a
Incentive to Purchase Now.
- easily navigate the store. This can be achieved from excellent
as well as online sales promotions that encourage the browser to navigate
the entire store (product line).
- understand "how" to make a purchase.
This includes giving the consumer the option to purchase online and
offline (include 1-800 numbers etc.). There must be clear directions as to
how to purchase online. The retailer should promote online purchasing as
much as possible because many customers will have to leave the online retail
store to make an offline purchase since they will be dialing in via their
only telephone line. By asking the consumer to leave the store before
making the purchase, you are increasing the likelihood of the consumer not
closing the transaction.
- track the purchases s/he is making as s/he is browsing the retail
This can be done by using "shopping cart" software. This should allow a
customer, at anytime, to review his/her purchases as s/he is shopping. The
customer should be allowed to delete products from the cart at anytime
(and be told explicitly that s/he can do this so that the customer is
willing to add products to the cart). The customer should also be allowed
to exit the store and check out the cart when s/he wishes.
- include contact order information on each page to facilitate offline
- include an option to download the catalog and browse it offline.
This is very important when considering that many potential customers pay
for the time they spend online. They would be more likely
to consider purchasing from the online store if they had a copy of the
catalog that they could view, at their leisure, offline.
As with other forms of direct selling there must be a reason why the consumer
should purchase now. Incentives can include:
One critical incentive that
should be apparent is
that the product is less expensive to purchase via WWW. Since the cost of
the transaction is significantly less than a traditional retail transaction
this cost saving should (at least in part) be passed on to the consumer.
- reduced Product Cost
- Availability of Product
Cost savings occur through the following areas:
Another key advantage is the scalability of WWW. As the consumer base
increases the cost per transaction will be reduced as the cost to maintain a
store that has a turnover of $1,000,000 is not significantly greater than
the cost of maintaining a store with a turnover of $10,000.
- Printing costs
- Inventory costs
- Transactional costs
If WWW is the only source (or at least significantly more accessable
than other sources) for purchasing the product then this will give
the target audience incentive to purchase. via WWW.
The following applications are considered effective use of WWW as a
Changing the Limiting Factors for Retailing
- Changing the Limiting Factors for Retailing Reach
- Bringing Buyers and Sellers Together
- Business to Business (Wholesale) Applications
WWW allows niche marketers to develop a retail environment that has a
global presence. The limiting factors of the retailer's reach is consumer
access to WWW, not the traditional geographic barriers of a retail store.
This gives niche marketers immediate access to a global audience,
Culinary Software is a good
example of an existing niche marketer benefiting from a global audience.
15% of its revenue now comes via its web-site. All business derived from
its web-site is new business, and 15% of it is from overseas. The site
has only been open since September, 1996, so growth in business from WWW
can be expected.
Large retailers are also able to take advantage of WWW as a global
retailing presence, to complement other retailing efforts. L.L. Bean and Land's End and two good examples.
Success for these retailing efforts should be measured in two ways. The
revenue generated from the sites, as well as the cross-promotion the sites
create, increasing the revenue from traditional sources.
Bringing Buyers and Sellers Together
WWW allows for the gathering of buyers and sellers on a scale that no
other medium, or in store retail environment, can facilitate. The
following examples illustrate the ability of WWW for achieving this. You
will note that each example is of a virtual company that has no off-line
Provenance is an example
of using WWW to bring buyers and sellers together in a way that no other
medium can facilitate. Provenance is an online art gallery. The goal of
Provenance is to fill the online
gallery with digital images of 5,000 works by artists worldwide.
Customers can search the site by entering price ranges, size, medium, and
school of art and can see the results of the search immediately. This
gives customers choice in one store that they have never had available
before, a choice that is not overwhelming due to the effective site design
capabilities. Each artist (many very small) is exposed to a target
audience they have never
had before, truly bring buyers and seller together in a powerful
Amazon.com is another
illustration of bringing buyers and sellers together in a unique fashion.
is a comprehensive bookstore with over a million titles. Amazon.com does
not actually stock the books but will order them from the publisher once
an order has been requested. Amazon.com's various services include
book reviews, fostering
communication among its users with chat rooms (developing a sense of
community), offering discounts of 10-30% on over 300,000 books, and
when a new title is available that may be
appropriate for that user.
The cost to "stock" a book virtually is much less significant than in a
traditional store, thus books that are usually out of stock may be
available through Amazon.com.
Much like the Provenance example above
(bringing artist and art affecianados together in great numbers),
Amazon.com brings book publishers and readers together to facilitate
mutually benefical transactions.
- CD Now
CD Now facilitates online retailing for CDs much like Amazon.com does for
books. CD Now boasts 165,000 shoppers per month who can purchase CDs,
browse through the 12,000 biographies of recording artists or take
advantage of many other WWW enabled services.
Internet Liquidators allows WWW shoppers to bid against other shoppers for
a wide range of
products. Shoppers can participate in real-time dutch auctions. A dutch
auction is a little different from the traditional bidding-up style
auction. A dutch auction steadily reduces the price until all the stock,
for the product, has been taken. Thus the later you bid, the cheaper the
product, but you increase the risk the product has already been purchased.
Shopper can see current auction status as information changes. The site
continuously shows the current price of the item, the number of items
remaining and the time left. WWW has truly broadened the target audience
of the auction and creates a significant market place for many items.
Disintermediation refers to the ability of WWW to allow companies to
bypass traditional channel intermediaries to deal directly with their
customers. The following examples of good illustrations of WWW allowing
Business to Business (Wholesale)
- Quick Quote
Traditionally when you consider life insurance or other similar products
would deal with a salesman that specializes in this area. That person
would advise you on appropriate actions and would be compensated by
commission based on the value of your investment. Now you can use Quick
Quote, which includes a database of products, nationwide. Customers can
now order policies online avoiding the need to use an intermediary
(salesperson). This is a real time saver for those who cannot
arrange to meet with a sales person, and the reach of the search insures
that the results are very competitive.
- Microsoft Expedia Travel
Microsoft Expedia Travel Services is an excellent example, from the travel
of being able to use WWW to avoid an intermediary (traditional travel
agents). At this site, a travel customer can reserve hotel rooms, rent a
car and purchase airline tickets. Users can receive Email of low cost
flights to favorite destinations, links to weather sites, a currency
converter and forums for sharing travel tips among other travellers. This
is a richer service than a customer would usually expect from their
regular travel agent.
E*Trade is a good illustation of how personal investing is very suitable
for WWW, and can replace the need for your traditional stockbroker.
Investors can access a wealth of information on individual stocks. You
can look at basic company information, charts showing a stock's
performance history, up-to-minute stock quotes and earnings estimates.
E*Trade also has an excellent new feature that will give breaking news of
a company that the customer queries. The cost per trade is very
competitive, at $14.95 and a receipt is sent to the customer the
instant a transaction has been made. All the remaining resources
As a transactional medium, WWW has already proven very valuable in
business-to-business (wholesale) transactions. In fact, the total
value of business-to-business transactions performed on WWW is greater
than the value of retail transactions and the growth outlook is also very
favorable. According to Forrester Research,
retail transactions will increase from $518 million in 1996 to $6.6
billion in 2000. When business-to-business selling is factored in,
web-initiated sales will increase from $1 billion to over $117 bilion
during the same period. Since a higher percentage of businesses are
online (when compared to consumers); the number of businesses each
business transacts with is small (when compared to retail); and the
average value of a business-to-business transaction is significantly
higher than a retail transaction, then business-to-business commerce makes
sense. The following examples are good
illustrations of business-to-business commerce.
- Dell Computer Corp.
The majority of sales for Dell Computer Corp. are to businesses. They
are a direct marketer who began in 1984 using mail order to market
their computers. Dell reports that it does $1 million in sales a day from
its web-site, and this is increasing at a rate of 20 percent a month.
Dell tailors web pages to individual corporate customers for online
ordering and is implementing new features like a digital order
confirmation that is sent to customers within five minutes of placing an
order. According to Michael Dell "The Internet is the ultimate direct
sales model." Dell's aggressive use of the web compliments its internal
processes that create very efficient customer order turnaround. An order
placed at 9:00 AM one morning is on a delivery truck by 9:00 PM the
Industry.net is an excellent example of innovative use of WWW in
business-to-business commerce. Companies can post their supply
requirements such that anyone can now bid on them. This is a reversal to
the more conventional purchasing model where companies may request bids of
a few suppliers.
- GE Trading Process Network
This site was established in 1994 so that vendors could quickly make bids
on GE electronics component contracts. GE is able to get more companies
competing for business by offering the opportunity for vendors to bid and
suppliers incur lower selling costs. GE has opened up the site to all
businesses as a place to conduct business-to-business commerce. Buyers
can browse an electronic catalog of goods and services, generate
purchase orders and pay for their purchases on-line (or off-line for small
companies who are not equipped to receive electronic funds.)
- Manheim Online
Manheim Online brings WWW to the supply chain for used automobiles. This
includes a network of auto makers, banks, leasing companies, rental
companies and users of fleet vehicles. Used car dealers can now browse
through vast inventories of used cars nationwide and order the cars
online. This really brings together the buyers and sellers of used cars
together in such a way for the first time.