I.

Non-store Versus Store-based

Retailers
While only 10% of retail sales
are made through non-store
channels, sales in non-store
formats are growing faster
than store sales.
Non-store retailing is a form
of retailing in which sales are
made to consumers without
using stores.
I. Non-store Versus Store-based Retailers
The various types of non-store retailers are defined in
terms of the medium they are using to communicate
with customers:
Electronic retailers use an interactive computer or
computer-like interface to communicate with customers.
Catalog and direct mail retailers communicate using
printed material.
Direct selling retailers communicate with customers
through a personal, face-to-face contact by a
salesperson.
TV home shopping retailers use television.
Vending machine retailers have limited
communications through the display of
the merchandise in the machine.
I. Non-store Versus Store-based Retailers
The nature of the communications
between the retailer and its customers
differs for the various non-store retailing
formats. The communications in direct
selling are highly interactive.
Electronic retailing has the potential
for providing this same high level
of interactivity. On the other hand,
the communications in TV
home shopping, vending machine,
and catalog retailing are not very
interactive.
I. Non-store Versus Store-based Retailers
Most non-store retailers offer
consumers the convenience of
selecting and purchasing
merchandise at a time and
location of their choosing.
While non-store retailing provides
unique convenience benefits over
in-store retailing, frequently
consumers are not able to get
some important services provided
by store-based retailers including
that they cannot touch and feel the
merchandise, try it on, attend
sessions on how to use it, or have
it altered prior to purchase.
II. Electronic Retailing
Electronic retailing is a retail format in
which the retailer and customer
communicate with each other through
an interactive electronic network.
After an electronic dialog between the retailer and
customer, the customer can order merchandise directly
through the interactive network or by telephone and the
merchandise is typically delivered to the customers home.
The bandwidth of the Internet connection into most
household limits the interactivity and amount and quality of
information that can be presented. Experts predict that a
large % of households will have broadband services by
2003. Thus, over the next few years, the quantity and
quality of information you will get from electronic retailers
will improve dramatically.
II. Electronic Retailing
A. Factors Affecting the Growth of Electronic Retailing
Electronic retailing is less than 1% of retail sales in the
U.S. and even less in Europe and Asia. However, the
annual growth of U.S. electronic retail sales is over
100%. If this growth rate continues, electronic retailing
will have a major impact on the retail industry
significantly decreasing retail sales in stores.
Three critical factors affecting the adoption of a new
innovation such as shopping electronically are:
1. The environment where customers can try the
innovation
2. The perceived risks in adopting the innovation
3. The benefits offered by innovation compared to the
present alternatives.
II. Electronic Retailing (Cont.)
1. Trying Out Electronic Shopping
To experience electronic shopping, consumers need to
have access to the Internet through a computer. In
1999, over 180 million people around the world had
access to the Internet with a majority living in North
America.
Women now comprise slightly less than half of Internet
users, which is important for the electronic retailer
because women do most of the shopping.
The substantial Internet usage by Generation Y
suggest a bright future for electronic shopping retailing.
II. Electronic Retailing (Cont.)
1. Trying Out Electronic Shopping (Cont.)
The US, adults over 50 years old are the fastest
growing market going online, now comprising 20% of
the Internet users. Older people tend to buy more
merchandise and services on-line because shopping in
stores is more difficult for them.
Internet usage and electronic shopping in Europe is
much less than in the US, due in part to higher
telephone charges while on the Internet, and unreliable
postal service, tax differences, and credit card security
fears. In addition, Europeans tend to see shopping as a
social activity.
II. Electronic Retailing (Cont.)
2. Perceived Risks in Electronic Retailing
A critical concern of consumers is that
credit card transactions are not secure
when shopping on the Internet.
A perception of risk is diminishing as
credit card companies promote the use
of their cards on the Internet and
inform customers that the customers
will not be responsible for security
lapses.
II. Electronic Retailing (Cont.)
Issues about Shopping on the Internet
1. Entertainment and Social Experiences
2. Safety
3. Ordering and Getting Merchandise
4. Number of Alternative
5. Assistance in Screening Alternatives
6. Providing Information to Evaluate Merchandise
7. Cost of Merchandise
Electronic retailing sales will grow only if the format
offers consumers advantages over the existing retail
formats.
II. Electronic Retailing (Cont.)
1. Entertainment and Social Experiences
In-store shopping can be a stimulating
experience for some people, providing a
break in their daily routine and enabling
consumers to interact with friends.
All non-store retail formats are limited in the
degree to which they can satisfy these
entertainment and social needs.
II. Electronic Retailing (Cont.)
2. Safety
Non-store retail formats have an advantage
over store-based retailers by enabling
customers to review merchandise and place
orders from a safe environment-their homes
II. Electronic Retailing (Cont.)
3. Ordering and Getting Merchandise
Electronic retailing, like most non-store retail
formats, enables consumer to order
merchandise from any location at any time of
the day. However, consumers usually have
to wait several days to get the merchandise.
Thus, all non-store retailers suffer in
comparison to stores on this dimension.
The importance of getting merchandise
immediately to customers depends on
the type of buying situation and
merchandise.
II. Electronic Retailing (Cont.)
4. Number of Alternative
A person living in Columbus, Ohio can shop
electronically at Harold's in London in less time
that it takes to visit the local supermarket.
Having a lot more alternatives to consider might
not be that much of a benefit. While it is easy to
go from one web sight to another, finding what
you want is not so easy because each
web site has a different interface which
customers have to learn to get the
information they want.
II. Electronic Retailing (Cont.)
5. Assistance in Screening Alternatives
Another potential, more significant, benefit of
electronic retailing, is the ability to have a FRED
search through a wide range of alternatives and select
a small group for the customer to look at in more
detail.
FRED is called an intelligent agent. An intelligent
agent is a computer program that locates and selects
alternatives based on some predetermined
characteristics. Shopping Bots or search
engines are computer programs that simply
search for and provide a listing of all
Internet sites selling a product category.
II. Electronic Retailing (Cont.)
6. Providing Information to Evaluate Merchandise
Retailers vary in the sheer amount of information
provided about the merchandise they offer.
Store-based retailers also are different in the
information they make available to consumers.
Specialty and department stores typically have
trained and knowledgeable sales associates, while
many discount stores do not.
Electronic retailers have greater
opportunities to provide information to
their customers than specialty and
department store retailers.
II. Electronic Retailing (Cont.)
6. Providing Information to Evaluate Merchandise (Cont.)
Using and interactive electronic communication channel,
retailers can respond to the customer inquiries just like a
sales associate would.
If information provided by the electronic database can be
frequently updated and will always be available, consumers
have advantages while store-based retailers have a very
difficult time retaining knowledgeable sales associates,
and in many cases it is not cost-effective for them to do so.
Electronic retailers can easily provide information to
have side-by-side comparisons of alternatives.
Customers in stores usually have to inspect
each brand, one at a time, and then remember
different attributes to make a comparison.
II. Electronic Retailing (Cont.)
7. Cost of Merchandise
Some experts suggest that electronic retailers will
have much lower costs than in-store retailers
because electronic retailers do not have to spend
money building and operating stores at convenient
locations.
However, electronic retailers, or their customers,
will have higher costs of delivering small
quantities of merchandise to homes,
as well as dealing with the high level
of return, and attracting customers to
their websites.
II. Electronic Retailing
C. What Type of Merchandise Will be Sold
Effectively by Electronic Retailers?
In addition to the amount and presentation of information,
retail formats also differed in the type of information they can
present effectively. For instance, when purchasing apparel,
some critical information might be look and see attributes
like color and style, as well as touch and feel attributes like
how the apparel fits.
Based on the difficulty of providing touch and feel
information through non-store channels, one might conclude
that non-store retailers will not be able to successfully sell
merchandise with more important touch and feel attributes
like clothing, perfume,flowers, and food. However, this type
of merchandise is presently sold by non-store retailers.
II. Electronic Retailing
C. What Type of Merchandise Will be Sold
Effectively by Electronic Retailers? (Cont.)
Branding overcomes many of the uncertainties in
purchasing merchandise without touching and feeling it.
In some situations, the electronic retailer might even be
able to provide superior information compared to store
retailers.
In other situations, touch and feel information might be
important, but the information in a store is not much
better than the information provided by an electronic
retailers.
II. Electronic Retailing
C. What Type of Merchandise Will be Sold
Effectively by Electronic Retailers? (Cont.)
Some services retailers have been very successful
over the Internet, because their look and see
offering can be presented very effectively over the
Internet.
The critical issue determining what types of
merchandise can be sold successfully by electronic
retailers is whether the electronic retailer can
provide enough information appropriate to the
purchase to make sure customers will be satisfied
with the merchandise once they get it.
II. Electronic
Retailing (Cont.)
D. Will Electronic Retailing Lead to More Price
Competition?
With electronic retailing, consumers can search for
merchandise across the Internet at a low cost. The
number of stores that a consumer can visit and compare
prices is not limited by physical distance.
To limit price comparisons, presently HIS retailers make
it difficult for customers to go from one Internet site to
another.
In addition, Internet retailers electronically prevent search
agents like FRED from accessing their sites and
collecting information about the products sold at the site.
II. Electronic
Retailing (Cont.)
D. Will Electronic Retailing lead to More price Competition?
(Cont.)
Thus by making these comparison difficult, electronic
retailers are limiting attractiveness and growth of the
format. However, consumers eventually will insist on
making these comparisons and will reward electronic
retailers that offer this service by going to their sites.
While consumer shopping electronically can collect price
information with little effort, they can also get a lot of
other information about the quality and performance of
products at a low cost.
II. Electronic Retailing
(Cont.)
E. Keys to Success in Electronic Retailing
Some critical resources needed to successfully
sell merchandise electronically are (1) strong
brand name and image, (2) customer information,
(3) complementary merchandise and services,
(4) unique merchandise, (5) the ability to
effectively present information on the web pages,
and (6) a distribution system to efficiently ship
merchandise to homes and receive returns.
II. Electronic Retailing
(Cont.)
F. Potential Winners and Losers in Electronic Retailing
F1. Catalog Retailers
Catalog retailers are best positioned to exploit
electronic retailing. They have order fulfillment
systems, and database management skills needed for
effective electronic retailing. Also, the visual
merchandising skills necessary for preparing catalogs
are similar to those in setting up an effective website.
Catalog retailers vary in the uniqueness of their
merchandise and will need to develop this area.
II. Electronic Retailing (Cont.)
F2. Store-based Retailers
The Internet provides an attractive opportunity for store-
based retailers to expand their customer base with relatively
low cost and risk.
Electronic retailing is particularly attractive to firms with
strong brand names but limited locations and distribution.
On the other hand, some store-based retailers with
extensive market coverage are cautious about selling
merchandise over the Internet because they believe their
electronic offering might cannibalize there in-store sales.
Self-service, store-based retailers such as some category
specialists and general merchandise discount stores
compete primarily on price and depth and breadth of
assortments. These retailers are particularly vulnerable to
competition from electronic retailers.
II. Electronic Retailing (Cont.)
F3. Electronic-Only Retailers
While electronic-only retailers such as Amazon.com
have been highly valued by investors, they presently do
not possess some of the resources needed for long-
term success.
If and when major retailers decide to exploit the
electronic retailing channel, store-based retailers have
some significant resources that can be used to compete
effectively in the emerging channel. Resources include
strong brand names and reputation, relationships with
vendors, skills in editing assortment, and local stores
for displaying merchandise and providing information
and services.
II. Electronic Retailing (Cont.)
F4. Manufacturers and Disintermediation
Disintermediation is when a manufacturer sells directly
to consumer by passing retailers. This concern arises
because manufacturers can get direct access to
consumers by establishing a retail site on the Internet
without making the heavy investment that retailers have
made in store locations.
But retailers are more efficient in dealing with customers
directly than manufacturers. They have considerable
more experience than manufacturers in (1) distributing
merchandise directly to customers, (2) providing
assortments, and (3) collecting and using information
about customers.
III. Catalog and Direct Mail Retailing
Catalog retailing is a non-store retail format in which the
retail offering is communicated to a customer through a
catalog, while direct mail retailers communicate with their
customers using letters and brochures.
Historically, catalog and direct mail retailing was most
successful with rural consumers, who lacked ready
access to retail stores. With the rise of dual-income
families and other people with limited time for shopping in
stores, catalog retailing has grown in popularity and now
appeals to a broad cross section of consumers.
Some merchandise categories experiencing higher than
average growth include apparel, hosiery, computer
hardware and software, gifts, and pharmaceuticals and
vitamins. Cosmetics, books food, etc. had lower, than
average growth.
III. Catalog and Direct Mail Retailing (Cont.)
A. Types of Catalog and Direct Mail Retailers
Two types of firms sell products through the mail
(1) general merchandise and specialty catalog
retailers and (2) direct mail retailers.
1. General merchandise catalog retailers
offer a broader variety of merchandise in
catalogs that are periodically mailed to their
customers,
2. Specialty catalog retailers focus on specific
categories of merchandise.
III. Catalog and Direct Mail Retailing (Cont.)
A. Types of Catalog and Direct Mail Retailers (Cont.)
Direct mail retailers typically mail brochures and
pamphlets to sell a specified product or service to
customers at one point in time.
In addition to the focus on a specific product or
service, most direct mail retailers are primarily
interested in making a single sale from a specific
mailing, while catalog retailers typically maintain
relationships with customers over time.
About two-thirds of the sales are for
merchandise and one-third are for
services.
III. Catalog and Direct Mail Retailing (Cont.)
B. Issues in Catalog Retailing
Direct mail and catalog retailing are attractive
business opportunities because the start-up
costs are relatively low.
On the other hand, mailing and printing costs
of catalogs are high, and it is increasingly hard
to capture consumers attention as the receive
more catalogs each year.
The length of time required to design, develop,
and distribute catalogs makes it difficult for
catalog and direct-mail retailers to respond
quickly to new trends and fashions.
IV. Other Methods

Direct selling is a retail format in which a salesperson,
frequently an independent distributor, contacts a
customer directly in a convenient location, either at
the customers home or work, and demonstrates
merchandise benefits, takes an order, and delivers
the merchandise to the customer. Special types of
direct selling include party plan systems and
multilevel networks.
Television home shopping is a retail format in
which customers watch a TV program
demonstrating merchandise and then place
orders for the merchandise by telephone.
The 3 forms of TV shopping are (1) cable
channels dedicated to home shopping, (2)
infomercials, and (3)direct response
advertising shows on broadcast and cable
TV.
IV. Other Methods (Cont.)
IV. Other Methods (Cont.)
Vending Machine retailing is a non-store format in
which merchandise or services are stored in a
machine and dispensed to customs when they
deposit cash or use a credit card. Technological
developments in the design of vending machines
may result in long-terms sales growth. New
video kiosk vending machines enable consumers
to see the merchandise in use and have more
information about the merchandise and use their
credit cards to make a purchase.