PROJECT REPORT ON

Study of E-tailing in India

SUBMITTED BY:

Nayan Joshi
Roll no. 119

FOR THE MASTERS IN MANAGEMENT STUDIES MARKETING BATCH 2009-2011

UNDER THE GUIDANCE OF

Dr. RamKishen Y.

K. J. SOMAIYA INSTITUE OF MANAGEMENT STUDIES AND RESEARCH VIDYANAGAR, VIDYA VIHAR (EAST), MUMBAI 400077.
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DECLARATION
I, Nayan Joshi, a student of MMS program, Semester IV of the University of Mumbai, 20092011 batch at K. J. Somaiya Institute of Management Studies and Research do hereby declare that this report entitled Study of E-tailing in India has been carried out by me during this semester under the guidance of Dr. RamKishen Y., as per the norms prescribed by the University of Mumbai, and the same work has not been copied from any source directly without acknowledging for the part / section that has been adopted from the published/ non-published work. I further declare that the information presented in this project true and original to the best of my knowledge. Dated: Place: Mumbai (Nayan Joshi)

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DECLARATION
I, Dr. RamKishen Y hereby certify that Mr. Nayan Joshi studying in the second year of MMS program, batch 2009-2011 at K. J. Somaiya Institute of Management Studies and Research has completed the project on Study of E-tailing in India under my guidance as per the norms prescribed by the University of Mumbai in the academic year 2010-2011. I further certify that the information presented in this project true and original to the best of my knowledge. Dated: Place: Mumbai (Dr. RamKishen Y)

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Acknowledgement

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Executive Summary
E-commerce is poised for a fundamental change a shift from making online purchases like commercial transactions involving a single consumer interacting with a two-dimensional Web page to going shopping online with a social experience involving groups of people interacting with one another in a three-dimensional Web space. Retailing has been revolutionized by new developments in technology. In the past, one conceptualized retailing as an activity that takes place purely in the brick and mortar or physical world. With the advent of the Internet, this is no longer true. In fact, the Internet has emerged as one of the most effective platforms for channelling transactions between retailers and other intermediaries in the supply chain, and opened up a new channel of reaching the customer through an online shopping interface i.e. spurred the growth of business-to- increased access speeds through broadband connections to the Internet, online retailing is becoming more interactive and experience oriented. With the fast development of various e-business solutions companies seek for new opportunities to get in touch with customers and build new type relationships. If in planning everything looks pretty simple and straightforward, in reality there are a lot of issues that shall be considered prior to launching full scale implementation. E-tailing is exactly this kind of beast. It brings a lot of operational and financial benefits, but it needs to be tamed. Thorough this project my objective is to understand the following Evolution of E-Retailing Reasons for E-Retailing growth E-Retailing Business models E-Retailing in Indian Scenario How to succeed on Web in E-Retailing

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INDEX
Sr. No.
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

Topics
Background Introduction E -Retailing - Why does it stand apart Evolution of E-Retailing 4 Ps and Retailing Merits & Demerits of E-Retailing Challenges of E-Retailing Global & Indian E-Retailers Decision points for an E-Retailer Reasons for E-Tailings growth Product differentiation in E-Retailing Price Discrimination & Reducing Search costs for Buyers & Sellers E-Retailing Business Models E-Retailing in Indian Scenario Retaining an E-Retail Customer Shifting Role for Intermediaries in Retail E-Commerce How to succeed on Web in E-Retailing Hurdles in E-Retailing FAQs of E-Retailing Case Study: Amazon.com

Page no.
6 7 8 9 10 12 13 15 16 19 20 22 24 25 26 28 31 32 28 41

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21 22 23

Summing up the Indian Scenario Conclusion Bibliography

65 67 69

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Background
Retailing has been revolutionized by new developments in technology. In the past, one conceptualized retailing as an activity that takes place purely in the brick and mortar or physical world. With the advent of the Internet, this is no longer true. In fact, the Internet has emerged as one of the most effective platforms for channeling transactions between retailers and other intermediaries in the supply chain, and opened up a new channel of reaching the customer through an online shopping interface i.e. spurred the growth of business-to- increased access speeds through broadband connections to the Internet, online retailing is becoming more interactive and experience oriented. In addition, new developments in the areas of wireless technologies are blurring the boundaries between the brick-and-mortar world and the online retailing world. E-TAILING is the latest buzz, and practically everyone is jumping onto this bandwagon every day; after all one of the biggest drawbacks of physical retailing is finding space and managing people. Web based retailing Seems, at least at first glance, to do away with all this with one click of the mouse. But wait - e-tailing has its own complexities, and one is not going to get ahead in this race unless one has thought through all the relevant issues and structured an offering that combats these. E-tailing, after all, is a business like any other and requires all the discipline and planning that goes with it, in fact, more, because the entry barriers are lower than in most other physical businesses.

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Introduction
E-tailing: What exactly does it mean? Internet Retailing or e-tailing as is usually referred to as covers retailing using a variety of Different technologies or media. It may be broadly be a combination of two elements. a. Combining new technologies with elements of traditional stores and direct mail model Using new technologies to replace elements of store or direct mail retail. Internet retail also has some elements in common with direct mail retailing. For eg, e-mail messages can replace mail messages and the telephone, that are used in the direct mail model as means of providing information, communication and transactions while on-line catalogues can replace printed catalogues. As with direct mail businesses, critical success factors include: Use of customer databases Easy ordering Quick Delivery

Operational elements that the Internet retail model shares with both the retail store and direct mail models Include: Billing of customers Relationships with suppliers

There are, therefore, many elements that Internet retail and more traditional retail models have in common. Indeed many of the most successful Internet retailers have been those that have been able to successfully transfer critical elements from traditional retailing to the Internet, such as customer service and product displays.

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E -Retailing - Why does it stand apart

A basic fact of e-Tailing is that all web sites are created equal as far as the location, location, and location imperative for success in retailing is considered. No sites are closer to its customers. This makes it vital that business makes customer to come back to their stores. The key to this goal is to optimize factors such as efficiency, personalization, socialization, the look and the feel of the site, offering incentives to purchase and security. Performance and Services The site must be efficiently designed for ease of access, shopping, buying, with sufficient server power and telecom Capacity coupled with marketing, ordering and customer service. Personalization personalize your It should shopping

experiences encouraging you to make repeated visits. Many sites register their Customer and personalize according to them. Socialization Giving online customer with similar interests a feeling of belonging to unique group of likeminded people helps to build customer loyalty and value. Look and feel Websites can offer attractive virtual store front and may provide multimedia experience. Incentives Web stores must offer visitors to buy and return coupons, discounts, special offers and vouchers for reimbursement on purchases made online.
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The Evolution of E-Retailing:

Evolution of Retailing: Impact of Technology Impact of Technology on these developments requires both brick-&- mortar and online retailers to re-assess their value proposition to the end-customer. For many, the road to success might lie in a creative blending of the possibilities offered across different areas. New types business models that will transform business of retailing. The stage is set for the emergence of hybrid retailers that successfully tap into the opportunities offered by the convergence of these domains.

Paradigm shift

Physical retailing
+

Online retailing
+

Hybrid retailing

Supporting Infrastructure

Stores Malls Catalogs

Internet TV Broadband Cable

Wireless Internet Information appliance +

Retailing

Etailing

M-commerce

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4 Ps and Retailing
Product I went to an electronics stores as a customer, I liked to listen sound and experience picture quality. In food world, I touch and smell vegetables and fruits. In garment store I tried new shirts on my body and analyzed colors and styles. Retailing in living place is multi sensory and more social. You enjoy it. Whereas e tailing you are just tired from computers in office. Again one needs to seat for hours just to buy which is moreover easy in real stores. Psychology of buyer and types of goods make difference in shopping at real places or Shopping online. So open retailing stores for goods that you can sell on line easily. E.g. Amazon did for Books & CDs. Place Finding a shop in real life is sometimes takes long walking and again parking problems. Which is moreover easy on Internet? Search on any search engine for any service provider in your local zone. You get rows of shops in a minute. To establish retail stores need a heavy expenditure. First of all retailer needs to find a place on road which is however be very costly. Instead of open e-tailing store on Internet with support of warehouse located at cheap inside place in your town. Place in case of e-tailing means for better shopping experience with trust & security on line. Price Establishing online shops are very cheap in compare to establish on place stores. Other than technical and promotional expenditures there are hardly any expenditures left. Consider the case of Amazon.Com, where e-tailer manages chain between customers and wholesalers. Where the orders go straight to the wholesaler. That means the working capital costs are cut down drastically. Not just that, an e-tailer is paid before he pays his distributor. Due to this difference

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of expenditures, on line stores can reduce prices in compare to living retail stores. Thats how one can attract many customers to buy on line with incentive schemes and home delivery.

Promotion It is a strategy where online stores need to beat retail stores. E-tailer needs to promote heavily to get customers from real world. Use traditional mediums like newspapers, magazines, hoardings, television, word of mouth and virtual mediums like on line advertising, associations & linking, banner ads etc. to promote your brand. Make sure your services are excellent when you are online. Building trust and security are most necessary. Dont forget that you are not only the etailer. Face competition in e-tailing industry itself.

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Advantages over living retail stores

1. Much wider choice at fingertips With web search capabilities (which need further

development) it is easier to find the types of goods a customer is searching for, catalogs are received passively, at the behest of the retailer. 2. Price discrimination E-tailers can use previous transactions to identify the likelihood of products being purchased a certain price points. 3. Customized product placements .It is easy for an e-tailer to make any change in product placement (user display) based on previous transactions, to increase the visibility of goods that the user is more likely to purchase based on their close relationship with previous purchases. Thus placement can be designed based on the context of the previous purchases. Disadvantages over living retail stores 1. Limited only to on line users. Not all customers have access to the web. E-tailer has no 100 % access to customers. Even out of web users few make on line money transactions. 2. Ease of use is a problem, as the web design is still complex, or at least somewhat chaotic. E-tail stores are not standardized in design in the way catalogs and retail stores have become. 3. Trust, security and privacy concerns prevail. Consumers are concerned with the use of the data they provide during transactions

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The four challenges of E Retailing

Every on-line fulfillment operation, large or small, faces four main challenges: Controlling customer data, integrating on- and off-line orders, delivering the goods cost-effectively, and handling returns. Controlling customer data As outsourcing arrangements proliferate and delivery services become more expert in using information technology, retailers risk losing their lock on consumer data. This knowledge, ranging from the socioeconomic status of Customers to their buying patterns and preferences, helps intermediaries and shippers reduce costs, but they can also use it to compete with retailers. Integrating on- and off-line orders From an operations perspective, the easiest route for companies with a foot in both the real and the virtual worlds might be to enter electronic orders manually into the off-line order management system. This option makes most sense when the volume of on-line orders is higher; companies must decide how much integration they need. In a totally integrated system, Internet orders would be automatically transmitted through a processing center and transferred to the shippers manifest. Savings up to 30 percent are possible if the cost of long distance telephone calls, data entry, teleserve operations, and error correction is reduced or eliminated and the cycle time between order and delivery is cut significantly. An integrated system with full ERP (enterprise resource planning) capabilities, for eg, can ensure that surges in demand dont retard key fulfillment operations such as data entry, inventory, and packing. Delivering the goods cost-effectively At present, every single transaction challenges e-tailers to deliver the goods quickly, cheaply and conveniently. The existing model for home delivery works well for letters and flat packages
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but not for e-tailings high volumes and wide variety of package shapes and sizes. But this is largely a technical and logistical problem, and it will be possible (though perhaps expensive) to solve it by developing new sorting and scanning equipment and by deploying larger delivery vehicles. Handling returns The problem of returns is encapsulated in an old saying in the book business: one today, here tomorrow. Nordstrom, Bloo mingdales, L.L. Bear, and other companies have built their sterling reputations partly on the ease with which customers can return defective or unwanted merchandise and the graciousness with which it is received. E-commerce retailers, with their emphasis on convenience and customization, must match this standard of service. At present, they do not.

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Top ten Global e-retailers (Source: PC Data Online) 1. Amazon.com 2. Planetrx.com 3. Ticketmaster.com 4. Gateway.com 5. Barnesandnoble.com 6. Mothernature.com 7. Iprint.com 8. Hallmark.com 9. Buy.com 10. Bigstar.com

Top ten Indian e-retailers (Source: PC Data Online) 1. Futurebazaar.com 2. Fabmart.com 3. Bazee.com 4. Rediffshopping.com
5. Ebay. In

6. Shopping.sify.com
7. Shop.indiainfo.com 8. Shopping.indiatimes.com 9. Sirindia.com 10. Search4i.com

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The decision points for an e-tailer

1. Merchandise to be carried/product mix 2. Why customers must buy from you 3. Sourcing strategies 4. Logistics/delivery to customer 5. Payment mechanism

Merchandise The most important decision for an aspiring e-tailer is to decide on the merchandise. In general, high involvement purchases and non-standardized items are least likely to be purchased in large volumes on the Net as the shopping ambience, touch-and-feel,kicking the tyres and so on are all important in the purchase of such items. Categories where repeat purchases are common, branding levels high and customer touch-and-feel irrelevant are likely to be the most successful ones for e-tailing. Virtual products such as software, financial services and so on which require no physical delivery would also be large killer categories online. Choose the merchandise you want to e- tail carefully; a wrong choice here will be like running a 100 meter sprint with a sandbag tied to your legs. Also, take into account the levels of penetration the Internet has in the likely user base for that merchandise; selling low-end merchandise on the Net in India may be senseless as Net penetration in these segments is still very poor. E-trade, a online stock brokerage in the US, and Amazon.com the bookshop, are all very successful as they have gone into categories where the services they offer (financial services and book selling) are purchased by the higher-end of the market, most likely to have Net access and also more likely to be techfriendly and willing to adapt newer technologies. Travel services, financial services and such other products oriented to a wealthy or high-income target audience will do better, at least for now, than mainstream merchandise, considering the skew of Internet access.

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The must-buy logic Once you have decided what you want to sell, you need to understand why you expect the customer to buy from you; there has to be some compelling logic/USP that you can bring which drives the customer to e-shop with you. Remember, unlike physical retailing where your competitor may be 10 km away (and hence 15 minutes away), in e-tailing your competitor is only a mouse click away. It is, therefore, extremely important that you make sure you have a value proposition that appeals to your target audience. More important, this should be sustainable and not easily replicable by competitors.

Sourcing strategies Being low- cost and efficient is extremely critical in e- tailing. In any retailing business (e-tail included), the purchased cost of the goods sold is the biggest cost element and hence the importance of setting up an efficient sourcing system cannot be overstated. In the lean inventory e- tail world, sourcing efficiencies are not limited merely to buying low. Making your vendors systems integrate into your systems is critical to ensure that the product flow is seamless and all possible efficiencies are exploited in moving the material from your vendor. Choose vendors with care - your vendor can make or break you, both with regard to product quality and, more important, delivery time. The Net world is unforgiving about delays in delivery and unkept promises.

Logistics Taking orders on your Web site may appear to be a breeze compared to reaching the goods to the customers specified delivery point in time and at reasonable cost. Keep in mind that customers in India (or anywhere else in the world for that matter) are never too keen to pay any extra charges for delivery and, in most business models, you have to factor in the delivery charges as an additional overhead of the business.
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Logistics (or order fulfillment, to be precise) is the key issue that distinguishes survivors in the e-tail business from losers. Logistics needs complex handling , Does the vendor ship directly to your customer, do you maintain inventory, if so, where and how much, how do you ship to the customer, how do you handle customer queries, complaints and service requests - everything other than mere order-taking can be dubbed under the general head of logistics. Payments A tricky area, despite the steps taken to put cyber laws in place, is payment. Consumers are unlikely to be willing to pay before delivery, and handling payment against delivery Increases the complexity of, and the load on, logistics. More important, service charges on credit cards are exorbitant (5 per cent is the fee charged by credit card companies here for Net transactions) and the concern, real or otherwise, of credit card information being stolen remains. Work out a payment model which your consumers will accept and develop your systems with this payment model factored in.

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Reasons for e-tailings growth

No real estate costs: e-tailers do not have to maintain expensive showrooms or warehouses in prime locations, they operate through their web sites and thus save drastically on the real estate costs. The real estate costs in the metropolitan cities are sky high. Besides this, maintenance costs of a virtual store vis--vis a physical store are much less. Easy and comfortably Easy and comfortably obtained info is another advantages that shopping on the Net offers. On the Internet, product information is just a few clicks away, all accessed in the comfort of a home. Traditional retailing stands out in stark contrast: the consumer searches frantically, runs up and down, grills a poorly trained store assistant who is unable to help him out. In the bargain, valuable time is lost. Simply put, shopping on the Internet for, say 15 minutes could save a two-hour trip to the mall. Consumers prefer to save this time so that they can devote more time for their professional and domestic priorities. Better interaction with the customers The greatest benefits of online commerce are its ability to establish interaction en-masse. Interaction refers to the ability of reaching customers on an individual basis and reacts appropriately to responses of individual customers. Interaction is a vital tool for mass customization. Examples are many and include online marketing of flowers, software books and education. This has also led to greater satisfaction among the online buyers. According to a research agency, 82% of the online buyers have been found to be satisfied with their purchases.
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Mass Media A supermarket has limited area of operation. It caters to customers of a city (and/or its suburbs), but a web site can be accessed from any part of the country or for that matter from any part of the world, thus increasing the potential customer base.

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Product Differentiation in E-tailing

The dynamics of "friction-free" markets are not attractive for sellers. However, goods are truly homogenous. As a result, online retailers can use technology to increase product differentiation. This will lead to an increase in seller profits, which may partially or completely offset the decrease caused by lower search costs. As a starting point, online retailers can increase the number of product offerings and the information provided about each product, because they are not constrained by physical shelf space. This will be particularly true as merchants improve online store layouts, a d as consumers acquire high speed Internet connections. The resulting increase in variety offers the possibility of customization i.e, the ability to let each customer choose the desired set of product characteristics. Customization of conventional goods becomes especially possible when Retail e- commerce is combined with modern production techniques that allow building-to-order. Dell Computer is frequently mentioned as an example of how online ordering can allow consumers to customize their purchases, resulting in a much larger variety of product offerings than was available in the past. Consumers ordering a Dell computer online can customize several product characteristics, such as the processor, memory, capacity of hard disk, display cards, monitor, and so on, resulting in thousands of potential product variations. This product variety is made feasible because the purchased computer is manufactured after the order is placed, thus eliminating the need for Dell to carry inventories of all possible variations of its product offerings. Information-rich products lend themselves to cost-effective customization. For instance, delivering an electronic newspaper tailored to the interests of an individual reader need not be more costly than delivering the same copy to all subscribers, while offering access to a much broader selection of news and resources than would be feasible to print and distribute physically. Customization can be based on a set of preferences specified directly by the consumer, or more subtly, the features of the customized product might be deduced automatically. Technology allows the identification and tracking of individual consumers, both within an online store and across different websites. Profiling technologies allow the creation and sharing of consumer profiles, the matching of consumer identities with
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relevant demographic information, or comparison with the known preferences of similar consumers. Such techniques can be used to discover or estimate the preferences of specific consumers. All these technologies make it possible for online merchants to assess their customers' preferences with significantly More accuracy than physical stores or catalog Merchants. For example, product offerings can be customized and recommendations can be made based on a consumer's attitudes, past behavior and demographic characteristics, or through "collaborative filtering" systems that offer recommendations based on the feedback and experiences of consumers with a profile of likes and dislikes similar to the targeted consumer. Merchants can also attempt to differentiate themselves and create switching costs for consumers through superior user interfaces with which consumers become familiar, or by employing systems that use past purchases or customer profiles to identify desired product characteristics. For example, systems like Amazon.com's book recommendation engine allow buyers to identify products that have their desired features, without focusing on the Corresponding price. To the extent that new purchases provide information that will increase the accuracy of future recommendations, consumers may prefer to concentrate their purchases to one or few online retailers, effectively facing switching costs similar to those induced by loyalty programs such as frequent flyer miles. In line with this type of argument find that price sensitivity is lower for online grocery shoppers than f or shoppers in conventional supermarkets. Providing more product information to customers leads to improved product fit and reduced price sensitivity. However, while retailers may be able to charge a premium to exploit product differentiation and switching costs, this ability seems limited in the online world. For instance, consumers have been reported to shop on Amazon to take advantage of its superior user interface and product information, and subsequently purchase at lower priced Buy.com

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Price Discrimination in E-tailing

When the ability to collect information about individual consumers and to differentiate products is combined with reduced "menu costs" of changing prices, online retailers have a greatly improved ability to price discriminate. The combination of creating market power through product differentiation, together with ability to price discriminate, may offset the increased price competition brought by reduced search costs. Even when sellers cannot identify the preferences of individual consumers, they can use versioning to induce consumers to reveal these preferences. Information products typically can be offered in several versions, each targeted to different consumers. For example, information can be delayed, access can be restricted temporally or geographically, products can be provided at different speeds, image resolutions, or functionality of interfaces. This practice of "versioning" allows sellers of information goods to price discriminate, and is likely to become more frequent as e-commerce enables sellers to increase the information content of their product offerings. Consumers typically resist being charged higher prices than other consumers for identical products. Thus, most price discrimination in retail markets will be accomplished either through versioning, or through targeted non-transferable coupons that offer customized discounts off a high list price.

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Reducing Search Costs for Buyers and Sellers Buyers face search costs in obtaining and processing information about the prices and product features of seller offerings. These costs include the opportunity cost of time spent searching, as well as associated expenditures such as driving, telephone calls, computer fees and magazine subscriptions. Similarly, sellers face search costs in identifying qualified buyers for their products, such as market research, advertising, and sales calls. Several Internet-based technologies lower buyer search costs. Many sites help buyers identify appropriate seller offerings: for example, search engines like Alta Vista, Yahoo! or Google.com; business directories like the one provided by Yahoo!; or specialized product and price comparison agents for specific markets, such as Pricewatch and Computer ESP for computers and components, Expedia and Travelocity for airline tickets and other travel products, Shopper.com and Yahoo Shopping for electronics, and Dealtime for books and music. On-line agents like the one provided by R-U-Sure.com monitor consumer behavior and help buyers identify the most desirable prices and product offerings without requiring them to take specific action. Internet technology can also lower the cost to buyers of acquiring information about the reputations of market participants. Such reputations may be provided as part of the marketplace (for example, on Ebay), or through specialized intermediaries, such as www.mouthshut.com, which rates retailers on specific attributes (service, product quality, delivery promptness etc) by surveying consumers that have recently purchased products from these retailers. The Internet lowers seller search costs as well, by allowing sellers to communicate product information cost effectively to potential buyers, and by offering sellers new ways to reach buyers through targeted advertising and one-on-one marketing. By reducing search costs on both sides of the market, it appears likely that buyers will be able to consider more product offerings and will identify and purchase products that better match their needs, with a resulting increase in economic efficiency. But the reduction in search costs
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combined with new capabilities of information technology can set off more complex market dynamics, too.

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E-Tailing Business Models

Virtual merchants Single-channel Web firms that generate almost all their revenue from online sales. Clicks and mortar Companies that have a network of physical stores as their primary retail channel, but also have introduced online offerings. Catalog merchants Established companies that have a national offline catalog operation that is their largest retail channel, but who have recently developed online capabilities. Online Malls A variation on the virtual merchant business model; they generate revenue from rents and services paid for by retailers who sell under the malls umbrella. Manufacturer-Direct Single or multi channel manufacturers who sell directly online to consumers without the intervention of retailers. Electronic auctions Proprietary auction site is an application of the supplier-oriented market place. These sites are open only to approved customers. They are designed to cement relationships between the company and its regular buyers. Sellers can get rid of surplus goods, and business customers can realize deep discounts. Electronic Bartering
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Related to auctions and bidding, electronic bartering is the exchange of goods and/or services without the use of money.

E-tailing in the Indian scenario

For an answer, consider the following. The most important cost advantage of e-tailing comes from whittled down shop front costs and elimination of intermediaries and economical distribution. For example, book e-tailing means giving out with big shops replete with slowmoving stock. Consider the case of Amazon.Com, where the orders go straight to the wholesaler. That means the working capital costs are cut down drastically. Not just th at, an etailer is paid before he pays his distributor. The implication: need for lower working capital. Collaborative commerce (e-commerce) an e-tailer may collaborate with some manufacturers and suppliers. Something that Easybuymusic.com has done. It has hooked up with warehouses of music companies and their distributors. So every time an order is placed with easybuymusic.com, it scans the warehouse closest to the customer. In most cases the distribution costs are substantially lower since fulfillment is done locally. Create economic value E- tailers should create economic value for the customer rather than a curiosity value. They should find out reasons, as to why customers should buy from a web site rather than a brick and mortar store and try to communicate this reason effectively. According to the KSA annual consumer outlook, the consumers are more comfortable buying certain items. An illustrative list with a percentage of the consumers are: books and music 47 per cent, home furnishing 29 per cent, sports apparel 25 per cent, casual clothes 21 per cent, shoes 14 per cent, groceries 9 per cent and tailored clothes 9 per cent. E-tailing in India can be a success if the etailers change their business models and Understand their customers more. Higher adoption of broadband can motivate more customers to do their shopping online, as it could provide better online buying Experience to them. Use of technology to provide the best customer interface, will become the key to success - whether it is a pure retailer or a branded manufacturer going online. Also, the new generation of customers, born into the world of cyber-space, could adapt faster to online commerce.

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Retaining an e-tail customer

That is more than just a challenge. The primary aim of every e-tailer is to attract a prospective customer to his e-tail site. That calls for a large ad spend. Naturally, there has been a surge in dot.com advertising in countries such as the United States. Dot.com ad spends are so large that as much as two-thirds of the capital raised by dot.com companies are spent towards advertising. Ad spends by dot.com companies are so huge that whatever savings achieved in the areas of real estate and inventory is more than offset. The question still remains: after that entire ad-spend, will the customer remain loyal to the etailing site? The Internet customer is very hard to predict and is different from the normal customer. Retaining him is not so simple. While a retailer expects strong loyalty, such a loyalty on the Net is difficult to obtain. A customer may shift from the Internet if someone else offers him a better deal." Using a mix of marketing tools such as public relations, advertising, promotions, direct marketing and Internet advertising to spread awareness among its target audience. What all these tell us is one simple thing: Customer retention is the toughest thing on the web. "First of all, it is difficult to get a consumer come to your site. After he comes in, the task is to retain him and get him frequently. Once he is confident about you, he will use his credit card to make his purchases at your site." On balance, retaining an e-tail customer is certainly a costly affair. For, in the world of the Web there is nothing such as loyalty. All of us are trying to acquire this fictitious customer. This customer is very smart, he knows where he will get his goods cheaper. I dont think customer is someone you can acquire today. Our customers range from kids 10 years of age to those 70 years old. I think the customer is extremely witty. I don't think in e-business it is possible to get a customer for life because in
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another 10 months there will be another few e-tailing sites. We are trying to outdo each other on prices and giving free gifts. Despite experience, one cannot say how to nail this customer to our site. This customer is very smart, he is going to visit 25 other sites all through the day. I think low prices tempt customers. One of the ways the customer can be acquired is to look at the customers purchasing power. Virtually, everyone spends about 10 to 15 per cent on excise and there is a 15 per cent logistic cost. So, ultimately 25 to 30 per cent is the cost getting across to the customer. If the Internet becomes a powerful media, there can be a Substantial reduction in the cost. This could be passed on to the consumer. Companies such as Sony have spent considerable fortune in building up their distribution networks. And they find that someone buys on the Net at 30 per cent cheaper, it upsets the whole value chain they have created. That is one big constraint. In India, disintermediation is going to be very difficult. The real game is this. Whether one can get something at a substantially lower price. In e-tailing companies, credibility and pricing will be major issues. Let us not talk about acquiring the customer for life. But, it is possible to keep the customer with a particular retailer for a reasonably long period of time, may be one to three years. Brand loyalty on the internet is very convenient because competition is just a click away. So, it is possible to build strong brands on the Net. The consumer will not shift unless he has very strong reasons. If his experience is not very pleasant, he will not come back to you. The Net can be a pain to use. Only retailers who offer overwhelming value can successfully retail on the Net. The trick is here. If the internet store is constantly innovating and offering new values to the consumer, There is no reason for him to shift. What is very clear about is the need to invest continuously in acquiring customers. The fundamental difference of e-tailing is this; it is not just a new medium of offering products. In e-tailing we are trying to change the buyer area which is not very easy to do. You can run a promotion today and you will get customers. You stop the promotion tomorrow and obviously the customer forgets. Some of them might be waiting for the next promotion.

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The Shifting Role for Intermediaries in Retail Ecommerce

Online retail markets will be facilitated by intermediaries, but there are important questions about the role and functionality of these intermediaries. In bricks and mortar e-commerce, typically distribution a number between of the intermediaries handle

original producer of a product and the ultimate consumer: for example, distributor, a a wholesaler, retailer, a and

sometimes a finance company to help with payment and an insurance company to offer service guarantees. It has been argued that as online marketplaces lower the cost of market transactions, it will become easy to match the original producer and the ultimate buyer directly, and as a result the role of intermediaries may be reduced, or even eliminated, leading to "disintermediation". While the growth of retail e-commerce may lead certain types of intermediaries to extinction, it appears likely that that online market will more than compensate f or this by promoting the growth of new types of intermediaries, leading to "reintermediation." One reason is that online markets are changing the constraints faced by sellers in designing their product offerings, fostering the emergence of new types of intermediaries that create value by aggregating services and products that traditionally were offered by separate industries. For instance, a consumer in the market for a new car might select a make and model based on the experience from test drives, magazine
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research, and recommendations from friends. The buyer would then negotiate the price, order the vehicle, and take delivery through a car dealer, arrange financing through a bank, and purchase insurance from an insurance company. By dramatically lowering the transaction and distribution costs, the Internet has allowed intermediaries such as Auto-by-Tel or Microsoft's Carpoint to offer all of the above Products and services, with the exception of the physical test drive. For information goods such as newspapers, music, videos and software, distribution is likely to be transformed, as delivering goods over the Internet is likely to replace many physical distribution systems, leading to substantial disintermediation of wholesalers and distributors. This impact is already apparent in software retailing, and soon goods such as books and music may also be delivered electronically as the physical component of mastering a CD or printing on paper can be carried out by the consumer or is superseded as in the case of electronic storage of music in MP3 players and text in e-books. For some physical goods, direct sellers such as Dell Computer are likely to squeeze out traditional wholesalers and distributors. Traditional retailers will still play a substantial role, as a large fraction of customers value their service and convenience. However, even in markets for physical goods, markets increasingly value quick, just-in-time deliveries from manufacturer to final customer to reduce costs and time-to-delivery. The supply chains of traditional retailers are likely to be transformed so that they receive more goods directly from manufacturers, rather than through wholesalers. Moreover, new intermediaries are emerging with expertise in running transportation and payment networks that will be especially important to retail e-commerce. For instance, FedEx and UPS have become major Internet intermediaries because of their logistics expertise and their economies of scale in distribution. Some merchants will follow click and mortar" strategies that will allow the integration of consumer experience across online and conventional channels. For example, a consumer may shop in a physical store, but order in a kiosk and have the purchase delivered at home; or a physical store can be used to return or exchange a good that was purchased online. The future for such strategies may be in strategic partnerships between online and conventional retailers.

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The roles of intermediaries in online retail markets will also include providing trust relationships, ensuring the integrity of the market, matching customers and suppliers, and providing marketing information to suppliers. For example, intermediaries such as search agents may acquire power because of their ability to recommend products, create consumer trust, and their perceived neutrality. Also, intermediaries are emerging to help consumers evaluate nonprice information. For example, next generation search agents will include the ability to search and compare product offerings based on product features; mouthshut.com provides ratings of individual merchants; Consumer Reports and opinions offer product reviews; Comparenet.com offers feature-based comparisons. Intermediaries will also collect information from consumers to keep track of merchant reputations. Credit bureaus and credit card companies will provide information or guarantee payment for consumers.

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How to succeed on web in Etailing:

To succeed on the Web, all companies involved in e-tailing must move rapidly in several directions: 1. Run the e-business like a bricks-and-mortar store by rigorously measuring performance against classic retail and catalog metrics, such as gross margin and ticket size. Giving customers free shipping, for example, can have the effect of depressing the latter, and that in turn can destroy a retailers economics. Therefore, on-line retailers should give free shipping only as an explicit vehicle for acquiring new customers or as a prize to loyal customers or heavy buyers. 2. Use experienced merchants, marketers, and operations executives. The on-line enterprise could bring in experienced merchants from the landed company and hire catalog experts to manage warehouse operations. 3. Closely watch all of the marketing investments related to e-tailing to make sure that they are properly focused. Expensive mass-media advertising along the lines of Super Bowl or World Series advertisements, for instance, might be a less effective way of acquiring customers than starting a catalog. 4. Begin to reduce the fixed costs of e-tailing to a level that matches realistic current business projections. Monitor all of the companys key vendors and Web investments, and apply tough retailing standards of judgment to evaluate every proposed new feature and function on the Web site. 5. Manage e-tailing as a truly integrated channel. Retailers can apply this integrated marketing vision in a number of ways, such as putting detailed information about their products and services on-line for the benefit of anyone who wants to browse and coordinating their online merchandise offerings with their catalogs and their stores (for example, by selling bigticket, hard-to-bring-home items such as refrigerators and washing machines on the Web).
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6. Refine the business model to seek revenue from high-margin referral and advertising commissions. Like Amazon, e-tailers can focus on their most successful categories and add partners for others, in which they can take a commission. But they will be forced either to fight or to ally with content players that are trying to reach the same sweet spot.

Hurdles in e-tailing
Most of the e-tailing ventures have not been as profitable as they were expected to be, the reasons being: - One estimate is that India has a mere 4 million Internet users, mostly are from metros. According to web analysts many areas of retailing, Internet is unlikely gather a sizable slice of market. And that could be several years to come. Especially in businesses where Margins are thin. Despite a higher Internet penetration, cities like Mumbai or New Delhi Might not be a haven for an e-tailer.

Reason: For things like grocery, there is a shop out there at every nook and corner. All that an individual has to do is just make a phone call and the goods are delivered at his doorstep. Thrown in along with free home delivery is a month's credit. Cheap labor Thanks to easy availability of domestics at an affordable wage bill, quite a few of the rich customers hire them for doing domestic chores, which include shopping. The usual Indian aversion to use credit cards. Thanks to low penetration of credit cards and the lack of popularity of debit cards, e-tailing might find it an uphill task to catch on. Mounting competitive pressures

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The market f or online buying is still at a nascent stage. The turnover of the sector is relatively small and many players have already entered into it. Thus many e-tailers are eyeing a small market, exerting more pressure on operating margins.

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Shopping is still a touch--feel--hear experience Unlike the Americans, Indians do not suffer from 'time-poverty' and shopping is still considered to be a family outing. Hence this type of an environment creates a problem of customer retention. In e-tail, customer retention by 5% leads to increase in profits by 25%. Most people buying on the net do it out of curiosity and a repeat purchase is unlikely. Inadequate information Inadequate information provided when the customers discerns it certain products like clothes, cosmetics etc. Involve higher customer involvement. Most customers are comfortable buying books and music on the Internet because the information required making a purchase decision is simple. But not so when a customer has to buy, say a blue Trouser. Here the customer wants to know: Which shade of blue is it? How does it feel on skin? How easily does it crease? This problem does not crop up in traditional retailing. In cyber space, on the other hand, the buyer is normally starved of crucial information. Only the seller knows about the true quality of trouser. This is a clear case of information asymmetry". Profitability

Relative Costs of a Retail Superstore versus an Online Retailer: Relative Costs of a Retail Superstore versus an Online Superstore Online Retailer:

Average sale Discount Shipping and handling Sales tax

100 (10) 0 7

100 (20) 11 0
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Customer pays Cost of sales Cost of service Gross profit Rent Labor and store Expenses Website Marketing Net profit

97 (67) (3) 27 (1)

91 (58) (10) 24 (5)

(11) 0 (3) 12

0 -3 (17) (1)

Note: Parentheses indicate negative values Source: Data from Forbes, March 1999. 99 f

In the early years, e-tailers lured online shoppers online shoppers with discounted prices and free shipping offers. They spent huge amounts on advertising and building a brand image, hoping to cash on it in the future. The economics of online retailing are however, not working well. In most categories, margins are simply insufficient to cover high fulfillment and marketing costs. On-line prices have to also compete with those of other on-line competitors, who charge less for the same items. Given the margins and the costs of online retailing, profitability of many pureplay Internet retailers still seems to be distant. Customer Experience

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According to Gartner Research, most online buyers, limit their purchases to the handful of sites that they find familiar and comfortable. Online buyers save time in two ways: Limiting the search time to find a retailer and speeding up the buying process through familiarity with the site structure and operation. Companies need to increasingly focus on relationships with customers by wrapping value around products. For online buyers, this 'value' manifests itself in the form of convenience, saving them time and efforts. Ease of use, lack of complexity and speed of transaction completion will be critical for online buyers. Amazon continues to lead the other e-tailers, in terms of overall customer buying experience. Shipping costs One of the main reasons consumers reject online shopping is the added cost of shipping. Many users are simply not prepared to pay an extra 10 to 20 percent to have purchases delivered when they can just as easily pick up a similar product down the street. As profitability becomes increasingly important, many e-tailers who provided free shipping initially, have scaled back on such promotional offerings to cut costs - driving away some buyers. Shipping and handling charges continue to be a contentious issue for e-tailers. To minimize customer misgivings and aborted sales, retailers need to tackle this issue with a long term perspective. Privacy and Security Security, trust and reliability are among the concerns that customers have, about online buying. Consumers are unwilling to share credit card information on the Internet, fearing that it may be stolen and their personal information randomly distributed. A number of other high- profile security breaches on popular e-commerce sites have undermined the confidence of online users in recent months. E-fulfillment Fulfillment systems involve large capital outlays, and a poorly managed fulfillment system severely undermines an online operation - no matter how good the products are. Fulfillment is part of customer service. Merchants lose customers more from bad customer service than from
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any other reason. For online shoppers, a delay in receiving an order definitely qualifies as bad customer service. Most e-tailers have been using their own distribution centers for warehousing and delivery. However, some have turned to third-party distribution, while others are using direct shipping from suppliers. A well-oiled fulfillment system maximizes inventory churn, keeps customers happy, generates return business, and therefore improves a company's top line. This is one area where many e-tailers still lag behind their offline competitors. Customer Service Most online users perceive that companies doing business both online and at physical locations are better at providing customer service for online transactions than companies that exclusively operate online. A lack of coordination between channels could however be a problem. Companies need to integrate channels and ensure a consistent level of service across the board. Those e-tail sites associated with brick-and-mortar stores are delivering the best overall customer satisfaction, according to the results of a survey by Andersen. 49 percent of online users perceived that companies doing business both online and at physical locations are better at providing customer service for online transactions than companies that exclusively operate online. Big retailers need to bring the same stellar level of customer service they provide at the brick-and-mortar stores, to the Internet. It is also extremely difficult to replicate the experience of shopping in a store on a website - tradeoffs have to be made when deciding Whats most important to users at particular stages in the shopping process? For customers who buy both online and offline, how do the two channels compare? According to consulting firms BCG and cPulse, the biggest advantage cited by consumers in USA who were primarily online buyers was convenience, not price or selection. Customer Preference to Online or Offline Shopping Based on response to following question: "For each of the following categories, if an item is easy to buy both offline and online, I would:"

ALWAYS / MOSTLY Buy Online

Apparel 5.1

Electronics 14.1

Travels 29.8

Book 28.9

Grocery 1.9

Investing 17.9
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Buy Equally ON & Offline Mostly buy Offline

21.5 34.8

27.6 26.3 32

22.8 17.3 30.1

34.9 22.7 13.4

5.8 15.2 77.2

14.1 13.7 54.2

Always buy Offline 38.5 Source: cPulse, November 2000 Globalization

For globalization, understanding differences in consumer tastes, language, payment preferences, business practices, government regulations and delivery options are some of the issues that global e-tailers need to consider. According to Forrester Research, supply chains of e-tailers are not robust enough to handle the future demands of global e-commerce. Inefficient global logistics systems will need more sophisticated, real-time communications based on the Internet to keep up with demand. Global supply chains are hampered by today's logistics processes, which barely support the task at hand, preventing shippers from handling more customers. As international trade grows, e-tailers face increasing challenges like more customer returns, increased legal risks and greater liability. E-tailers need to build open tracking systems that allow them to collaborate and adhere to various regulations around the world. Customer Demographics E-tailers are faced with the enormous challenge of reaching and sustaining profits, and the even more difficult challenge of achieving profitability in a marketplace that has passed the initial phase of spectacular growth and is a virtual melting pot of different target groups. Old economy titans have been finding that selling things over the Internet is not as easy as it looks. One of the key advantages an e-tailer holds over a traditional retailer is the Nets capacity to enable monitoring of consumer behavior. E-tailers will have to look closely to find any differences in the buying habits of the various demographic groups, and act quickly on the shopping patterns of their customers. Consumers will redefine requirements for retailers as they actively research their purchases and leverage sites for comparison data.

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FAQs of E-tailing
1. How is e-tailing different from retailing? Ans: The concept of e-tailing is to effectively e-enable a phenomenon that is part and parcel of our everyday lives. E-tailing offers a delivery channel of convenience that takes away the pain of shopping. It is taking advantage of the technology boom. It is the marketing window of technology. Thanks to the Internet, today you have access to infinite amount of knowledge on what to look for and how to make a selection. I think what e-tailing is doing today is to convert this knowledge power which is now freely available at home. Sitting at home I can cut through the clutter. Therefore, e-tailing empowers the prospective buyer to take a decision. Thanks to this knowledge shift, we can talk about a perfect market place which is a major benefit of etailing. 2. Can traditional retailing and e-tailing co-exist? Ans: Both retailing and e-tailing will continue to co-exist for quite some time to come. We don't see e-tailing as a complete alternative to physical shopping. Clearly, both will co- exist. What will happen is this: people buying on the Net will start increasing slowly. Quickly after some time, there would be an exponential jump with people realizing that this medium definitely offers significant convenience. For need-based products, the Net is becoming a very convenient way of buying. It is believed e-tailing will expand the market in the case of impulse-based products such as books and music. The Net offers you an opportunity to buy irrespective of where you are. This will clearly expand the market. After a period of time, it is believed both retailing and e-tailing will reach their plateau and continue to co-exist with each other. Retailing is coming of age in India. We have not seen large retailers in India until now. 3. E-tailing offers tremendous advantages and transfers these advantages to the consumer. Indians are reluctant to use credit cards on the web. So, what is the payment modes recommended for online retailing?
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Ans: In USA, penetration of credit cards is much higher and people use them more frequently. In goods such as apparels, retail gross margin is as high as 65 per cent, whereas in India it could be somewhere between 35 and 40 per cent. This margin is enough to take care of credit card costs among other things. In FMCG, the margins are even lower at 10 per cent or still lower in India. Hence, e-tailing might not catch on so fast in India. It is extremely important for a consumer to be comfortable before using a credit card at the website. They are a convenient way of paying online. In fact, they are one of the best ways of paying online. However, there are certain security aspects which are a cause for concern. Hence e-tailers would have to look at an alternative form of e-cash. Currently, lack of technology is preventing this from really happening. 4. How important is content for an Internet retailer? Ans: That is more a function of the business model that the retailer chooses. In general, the Internet is about choice and the customer will be more comfortable with a retailer who provides information to enable an informed decision. Related content will always make an additional impact and at the same time will provide additional hooks. This is to be netted off against the cost of creating and maintaining the content. 5. What infrastructure an e-tailer must take care of? Ans: The infrastructure that an e-tailer must take care of should have the following elements: a. Customer service: An e-tailer must be able to handle individual and rapid responses, whether it is in taking orders or handling queries, problems and returns. b. Logistics: Unlike a traditional retailer, where a customer walks into the store and picks up the merchandise, an e-tailer has to reach the product to the individual customers doorstep. In e-tailing, a shipment is possibly of a single item, to an individual customer. Hundred per cent accuracy is a must in this case. Keeping per-unit distribution costs down is also an important issue. You have also to ensure that the package reaches the customers doorstep when he is available to
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take delivery. Then consider returns, exactly a reverse process, which has similar challenges. c. Conversion: If the customer does not find exactly what he is looking for, the system must suggest alternatives so that the customer is not lost. Finally, the issue of having a site accessible all the time. Page download time must be minimized, the site must be easy to navigate and the clicks per purchase must be minimized. 6. Can Internet work in things such as retailing? Ans: Before selling on the Net, one must take care of three things - time, cost and quality. Wherever opportunities lend themselves to the Net, the Internet will be successful. Probably, in the case of medicines the Internet may be successful. Take the case of a diabetic or a blood pressure patient. There is a standard prescription that he follows every month. In such cases, the Internet could be useful. However, in the case of perishable goods one has to be extra careful. One may need refrigeration and local stock points. People may have to take care of logistics themselves. One just cannot use DHL or Fedex for everything as it may turn out to be costly. Probably in cities like Mumbai one may have to use a courier like Vichare whose network is strong and costs are cheaper.

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Case Study

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Case Study Amazon "Our vision is to use e-commerce platform to build Earth's most customer-centric company, a place where people can come to find and discover anything and everything they might want to buy online. We won't do so alone - we'll do so together with what will be thousands of partners of all sizes."
-JeffBezos, CEOAmazon.com

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At the end of 1999, Amazon.com (Amazon) the largest virtual bookstore in the world had a market valuation of $22.15 bn. During the year, Amazon generated sales of $1.64 bn. Amazon's websites offered a host of consumer goods - books, music, jewellery, prescription drugs, groceries, toys, electronics, software, and video games. Its 'zShops' program allowed companies to sell an estimated 500,000 items through its website. Amazon also provided a web shopping comparison service and what some observers considered to be one of the most comprehensive movie databases on the Internet. In 2000, the company was hopeful of generating annual sales of $6 bn. Amazon had attempted to make shopping extremely simple by incorporating various user-friendly features. It had built up a strong rapport among customers by introducing features such as regular book reviews and recommendations based on its databases. Roughly 66 percent of Amazons sales went to repeat customers. With its substantial investment in warehouse distribution centers, Amazon had also developed a formidable reputation for order fulfillment and delivery. Even though Amazon was clearly the global leader in the Internet based books business, profitability remained a key concern. During 1999, the company registered a loss of $720 mn. Amazon CEO, Jeff Bezos however, remained optimistic about Amazons prospects: "Were focusing on introducing ourselves to customers. To do anything else, right now would be a very poor management decision. Its not at all unusual for a four year old company to be in an investment cycle rather than a harvest cycle." Many analysts were also concerned about Amazons diversification into various new businesses. A report in Time magazine mentioned: "Its incredibly risky. How elastic is the Amazon brand name? How much can you stretch it until it simply explodes and becomes meaningless to consumers? And how long can the money hold out? Bezos has already burned through a banks worth of cash with no signs of slowing down. If anything he's upping the ante - according to estimates, the company's net loss could be $350 mn in this Year (2000) alone." Bezos, however, felt
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otherwise: "No, see, we are not a book company. We are not a music company. We are not a video company. We are not auctions Company. We are a customer company Incorporation of Amazon Having reached Seattle, Bezos and his first three employees set up their operations in a garage. The immediate priorities for the start up were developing the necessary software for the business and arranging for funds. Bezos hired Shel Kaphan, a brilliant programmer, to develop the software. After detailed discussions, Bezos was able to finalize a deal with the venture capitalist firm, Kleiner Parkins, inspite of having little knowledge of the books business. What impressed the venture capitalist was Bezos' firm conviction that selling on the Internet would completely change the economics of the book industry. Bezos figured that the average net start up had a 10 percent success rate. He gave himself a 30 percent chance. I think there is a 70 percent chance youre going to get all your money, so don't invest unless you can afford to lose it." Recent Developments In late 199 8, the German media giant, Bertelsmann, began talks with Bezos for a strategic alliance. Press reports indicated that Bertelsmann CEO, Thomas Middleoff had even sent a corporate jet to pick up Bezos from Turkey (where he was on vacation) to the German Company's Headquarters in Gutersloh. Later the talks fell through as doubts rose about the German media group's commitment to the online store business. In addition, Bertelsmann apparently found Bezos unwilling to give up control. According to an analyst, "Amazon has reached the level of critical mass. They have the cash to find what they are doing and they have the brand momentum." Bezos, without elaborating, explained that in spite of meeting Middleoff four times: "We just couldn't make it work". In October 1998, Amazon entered the European market with the launch of bookstores in Germany and the UK. In Germany, Amazon offered German as well as US titles. Amazon.co.uk offered British and American titles. In late 1998, Bertelsmann announced that it would take a 50 percent stake in the online arm of Amazon's main competitor in the books business, Barnes & Noble. Shortly thereafter, Barnes & Noble announced that it would buy Ingram, which supplied almost 60 percent of Amazon's books.
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In early 1999, Amazon began conducting online auctions. It partnered with Sotheby's to offer live auctions for rare collectibles. It also bought the auction site Live Bid.com. Later, in 1999, Amazon launched zShops, an e-commerce platform that offered independent stores a range of services from web hosting to credit card processing. As of December 31, 1999, Amazon had nearly 16.9 million customer accounts, a significant rise over 6.2 million at the end of 1998. Repeat orders accounted for 73 percent of the business generated during the last quarter of 1999. By this time, the international sales were accounting for 22 percent of net sales. In early 2000, Amazon announced a new World Wide Web address for mobile e-commerce customers. This new facility provided customers around the world the Convenience of a safe shopping experience using Internet enabled handheld wireless devices. In the same year, Amazon invested $60 mn in a one-hour delivery service, Kozmo.com. Amazon also paid $250 mn in stock to acquire Alexa, a market research tool, which tracked the destination of sites and its visitors. This not only helped Amazon keep track of its rival sites, but also provided valuable information relating to consumer behavior.

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Business Segments Amazon's businesses were organized into three segments. US Books Music and DVD/Video Segment With sales of $1.31 bn in 1999, Amazon was the leading retailer offering more than 13 million titles in books, music, and DVD/Videos. It created new speciality stores, enriched editorial content with the help of experts and added millions of used and out-of-print titles to its selection. Company also enhanced and added new features to its music store. Amazon became the first online retailer to dedicate an area of its store to free, full-length song download from established artists and major music groups.

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Early-Stage Business and Other Segments

Other US Retail: Amazon's other US online stores consisted of electronics, soft video Games, toys and home improvement products. US Marketplace Services: These services consisting of Amazon.com registered more than one million users and 1.5 million listing during the fourth quarter of 1999. Amazon.com Commerce Network: In late 1999, Amazon entered into collaboration with various e-commerce companies to promote their products and services, strategic partners were allowed to sell through the Amazon website. Separate stores were also set up for the partners.

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International Segment In 1998, Amazon had launched two international websites - www.amazon.co.uki www.amazon.de for the UK and German markets respectively. According to Media Metrix ratings for Europe, the UK and German websites were among the most popular ones in Europe. These sites offered books, music, DVD/Video, auctions. Strategic Alliances Amazon looked at partnering as a way to expand rapidly in a cost-effective manner. The quality of customer experience delivered by the company was the main criterion used for selecting a partner. During 1998-2000, Amazon acquired ownership stakes ranging from 17 to 49 percent in various online retailers - Greenlight.com, Living.com, Drugstore.com, HomeGrocer.com, Pets.com, Ashford.com, Gear.com and Della.com. Amazon spent an estimated $160 mn on these investments. By January 2000, these investments were valued between $900 mn and $1.5 bn. Randy Tinsley, Amazons VP (Corporate Development) explained the rationale behind these acquisitions: "These merchants are very synergetic with our core retail business." Amazon saw three advantages from these alliances (Refer Table-C) increased range of products and services for its customers, revenue generation in the form of marketing fee from partners, and increased market valuation of Amazon's stake in the partners. The agreements varied in scope from customer advertising activities and links to the sale of products and services of its partners on co- branded sections of Amazon's website. The company also promoted its partners via email and by including their marketing materials in boxes shipped to customers. The partners offerings were also mentioned on Amazons catalogs. For example, Amazons holiday catalog included offerings from Gear.com, which saved millions in advertising costs for that partner. Amazon rented a 'tab' on its website for Drugstore.com and added pharmacy to the list of shops on its home page. As per the agreement, Amazon would receive $105 mn over a period of three years from the partner with an operating margin of 80 to 90 percent.

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Partnering seemed to make sense in the drug industry where sales were regulated by state agencies and there was a high degree of dependence on insurance payment systems. Peter Neupert, CEO Drugstores.com explained, Its a complicated category ... and an obvious one for partnering." Ashford paid $10 mn when it signed a one-year agreement with Amazon, which took a 16.6 percent stake in that company. Ashford's CEO Kenny Kurtzmann described the deal with Amazon as "terrific" for his company: "If even one percent of Amazon's customers buy from Ashford, where the average purchase hovers at around $500, the company's sales could skyrocket." Amazon would receive $145 mn over five years from Living.com in exchange for establishing the exclusive Amazon.com Home Living Store on its website. The Home Living Store was displayed prominently along with the other stores. This store provided furniture, bedding, home textiles, decorative accessories, table top, windows treatments & other related home products to amazon's customers.

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Amazon's investments in companies such as Home Grocer and gift registry gave the company entry into segments that involved specialized industry relationships and complex distribution requirements. Rebecca Patton, President and CEO of Della.com, remarked: "Amazon wants to be the hub for shopping for all major categories on the web. We represented a category of products that Amazon did not offer." Ken Blue, CEO of sporting goods distributor Gear.com, explained: "For an emerging company like ours, having their expertise allows us to move faster and not make so many mistakes." Amazons partners gained through their access to its customer base of 16 million. Industry analysts opined that being part of Amazon's family of companies discouraged potential competitors and carried weight both in Silicon Valley and on Wall Street. For example, Drugstore.coms sales and overall market position was roughly equal to that of its rival PlanetRx.com, but its market value was 50 percent larger than that of PlanetRx. On the other hand, according to a survey conducted by Nielson Net Ratings, Pets.com ranked just third in traffic among the sites for pets, despite its alliance with Amazon. Amazon invited small merchants to setup shops on its site. Amazon offered services ranging from web hosting to credit card processing for these merchants. Each merchant had to pay $10 per month and a commission of 1.25 percent to 5 percent on each sale to Amazon. Retailers handled the delivery of the purchases made by online shoppers from the Amazon Website. Some analysts however were concerned that the failure of merchants to keep their obligations with their customers might tarnish Amazons brand image.

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Marketing Bezos explained Amazons marketing philosophy: "Ultimately, we are information broker. On the left side, we have lots of products; on the right side, we have lots of customers. We are in the middle making the connections. The consequence is that we have two sets of customers: Consumers looking for books and publishers looking for consumers. Readers find books or books find readers." Four key elements made up Amazons marketing strategy. The companys name conveyed the vision of the organization to become the largest store in the world. A satisfying and convenient shopping experience aimed to build customer loyalty. To promote the brand, advertising campaigns were inserted in carefully selected media. Hotlinks on commercial sites were used to attract web shoppers. When Amazon began its operations, it realized the need to make the buying experience as pleasant as possible for the customer. Consequently, it paid great attention to the design of the website and its constant up gradation. Typically Amazons website could be down loaded in 4.9 seconds. After the first purchase, Amazon's software would store the customer's shipping and credit card information. This ensured that for a subsequent purchase, a single click would be enough. To keep customers informed, Amazon also arranged for email confirmations of orders. Amazon believed that personalization of a customer's shopping experience was an important element of its customer value proposition (Refer Table-D). Bezos felt that personalized experience would differentiate Amazon from other e-tailers and established brick and mortar companies. Amazon made efforts to surprise people through better understanding the individual buying patterns of its customers. Amazon offered structured surprises that gave customers various rewards such as gift wrapping at no extra charge. Amazon also made efforts to personalize the information for every customer.

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Table- D Customer Value Propositions 1. Leave visitors to the site with a positive impression. 2. Give potential buyers other reasons for visiting store - reviews, contests and other events. 3. Make a customer's encounters -with the company a delight. 4. Personalize and customize service. 5. Perform as promised. 6. Exceed expectations. 7. Communicate the importance of customer satisfaction to employees. 8. Make employees feel they are the owners. 9. Do business better than others by offering the biggest selection at the best possible prices. 10.Help customers identify what they want even if they do not know exactly what they are looking for. Amazon had designed a comprehensive and aggressive promotion plan. The company encouraged discussion of the website at various forums including chat rooms. Within a year of setting up its website, Amazon had agreements with almost all the heavily visited websites like Yahoo, Netscape, Excite and American Online. In July 1997, Yahoo became the first of the big portals to tie up with Amazon. The agreement gave Amazon direct links from every Yahoo search result and book category page. Besides a hotlink on each page of Yahoo, the deal also offered high visibility. Later, Amazon began to use banner advertising on other sites. The company also initiated its Advantage program that encouraged independent publishers and authors of books or music CDs to market their titles directly via the company's websites. Admission to this program was free and through email.
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In mid-1996, a customer asked the company for permission to link book recommendations on her website to Amazon.com. The company accepted the request And developed a new concept of organizing a network of associates to help them sell Books and build communities of interest. Soon invitations were sent to organizations With a website on a particular topic to join the Associate Program. For example, it would not be feasible for an expert on 'Strategic Management' to open a physical bookstore and sell best books on the topic. The expert could become an Amazon Associate by creating a specialized website and featuring books from Amazon's database. When a customer is visiting the associate's website clicked to make a purchase of the book, the customer would be hyperlinked to Amazon.com to make the actual purchase. Amazon took care order processing, logistics, packaging and delivery. In the first three months of the program, Amazon signed up more than 5000 sites, ranging from Yahoo, Netscape and AT&T Business Network to the Meteorite Market. Amazon not only received additional business through this program, but also built affiliations with other websites and minimized competition from specialized websites. Associates earned a referral fee for linking to Amazon.com's Home page or searching facility (5 percent for every product sold through the link) or to Amazon's specific products (15 percent for books and 5 percent for other merchandise sold through the link). An Associate displayed a specific icon on its site to identify itself and received a weekly status report on referrals. Payments were made by cheque every quarter without raising any invoices. Amazon also provided on line help pages to potential Associates to set up links. As of February 29, 2000, almost 430,000 websites were enrolled for the Associates program. To help customers make more informed buying decisions, Amazon made various Attempts to create a sense of online community. Amazon encouraged people to post their own reviews of books on the website. Authors were invited for chats. Short stories were started and customers allowed completing the story. When compared to traditional retailers, Amazons marketing costs remained high. In late 1998, for every dollar of revenues, Amazon was spending 24 cents on marketing, compared to 4 cents in the case of traditional retailers.

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Amazon sought to improve the shopping experience at its websites on a continuous basis with the help of feedback from its customers. It had established customer service centers at Seattle, Washington; Slough, England, Regensburg, Germany, and Grand Forks, North Dakota. Amazon's service representatives were available at these centers around the clock via telephone and email, Amazon had automated certain tools used by service staff and announced plans for further improvement. It provided full refund for all items returned in their original condition within 30 days of receipt of their ordered item. Amazon used pricing as a strategic tool not only for aggressive promotion but also to attack competitors. It had earned the reputation of being the cheapest place to shop on the web. Even offensive competitors like Buy.com could not undercut Amazon's price, Amazon provided every day discounts of 50 percent on every book on the New York Times best sellers list. The company also provided 40 percent discounts on hundreds of thousands of titles and up to 85 percent on certain "special value" editions. In 1999, Amazon diversified into four new product categories - video games, software, home improvement, and gift ideas. Some analysts remained skeptical and felt that the new stores were likely to do little to improve the financial performance. To promote its home improvement store, Amazon announced that it would ship all products, irrespective of size or weight, for a flat rate of $4.95 for an indefinite period. The cost of shipping a 100-pound item over a distance of 900 miles was $240 for next morning delivery, $90 for three-day delivery and $50 for ground delivery.

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Logistics Amazon had instituted various measures to streamline its order fulfillment system. In 1999, Amazon added six warehouses in Fernley, Nevada, Coffeyville, Kansas, Campbellsville, Kentucky, Lexington, Kentucky, McDonough, Georgia, and Grand Forks, North Dakota. In all, the company had ten warehouse facilities. These warehouses, which used state of the art facilities to facilitate efficient packaging and shipping of products, were located in states with low or no sales tax. In 1999, Amazon increased its worldwide warehousing capacity from 300,000 square feet to over five million square feet. In general, Amazon maintained a two-day delivery lead-time. Since Amazon ordered books and other products after the customers had agreed to buy, the return rate was only 25 percent compared to 30 percent in many segments of the publishing industry. Amazon purchased a majority of its products from Ingram Book Group ('Ingram'), Baker & Taylor (B&T), and Valley Media Inc ('Valley Media'). Ingram accounted for approximately 40 percent of Amazons inventory purchases in 1998.

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Amazons Supply Chain Management: Key Objectives

Have a clear understanding of customer's delivery needs. Coordinate with wholesale suppliers and independent producers to make available to customers both current and have to final books. Provide two-day delivery on most orders. Allow customers to query the status of their purchases and track their own shipments. Align, supply and delivery to other functions such as marketing, sales and customer service. Source: Sounders, Rebecca "Tlie Amazon.com Way"

As soon as a customer placed an order, a computer assigned it to one of Amazon distribution centers. At the facility, red lights indicated which items had been ordered. Workers moved from bulb to bulb, taking out the items from the shelves and pressing button to reset the light. Each item went into a large green crate that contained the order of many customers. When full, the crates were placed on conveyor belts. All the crates arrived at a central point, where bar codes were matched with order numbers for dispatching. The customers ordered items were placed in these board box.

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Website Management Amazon used experienced systems administrators and network managers to and operate the company's websites, network operations and transaction pro systems and ensure the reliability of the company's websites. The company used the services of five Internet service providers to obtain connectivity to the Internet, both at home and abroad. The key features of Amazon.com's website included search facilities, reviews and content, personalization, One-Click technology, and secure credit card payment. The companys websites were designed to be very friendly to attract and retain customers, promote brand loyalty and result in repeat purchases. On the Amazon Home page, customers had the option to either browse through the stores or search for a specific product. The list of stores was provided on the right side of the page. Amazon's interactive, searchable catalogues provided a variety of search tools to look for products based on keyword, title, subject, author, and artist. The web page also highlighted the links to the latest product offerings in various stores. A customer choosing to browse could enter the store of his choice by clicking on the store's name. To speed up the process of product search and make selection easier, each store was sub- categorized. For example, books were organized into different subject areas along with additional sections like Best sellers featured in the Media, Award Winners, Computer & Internet, Recommendation Center. Music CDs were organized into popular Music and Classic categories, comprising 16 'browsing rooms'. Videos & DVDs were organized into 13 categories. Gifts were categorized into Gifts for Grown-ups, TopSelling Gifts, Gifts for kids, and Custom Gift Matcher. On reaching the desired product, the customer could click to get a brief description of the product. Amazon provided 'Shopping cart' facility to customers, who wanted to buy more than one item from the site. After selecting the product, the customer could add more items to the shopping cart by clicking on an icon. The customer could then navigate through out the site to buy more products and also allowed to delete products from the shopping cart. Finally, the customer had to fill a purchase order form to complete the transaction. The customers were intimated about the delivery of their products by email.
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Amazon used one-Click technology for customer order processing. A customer had to complete a purchase order form when purchasing for the first time. For subsequent purchases, the customer had to just click the mouse to complete the transaction. Amazon guaranteed secure transactions over the web. During the initial years, only 50 percent of the customers typed their credit card number over the Internet and the rest conveyed the number over telephone. Within two years of formation, however, the number of people typing their credit card number on the Internet increased to 80 percent. Amazon used Secure server software to encrypt the customer's personal information, so that it could be read as the information traveled over the Internet. Amazon used market research techniques to design and modify its web pages to user friendliness. During focus group discussions, Amazon had learnt that people did not trust the 'one-Click Technology'. To raise the confidence level, Amazon designed a thank-you' screen that indicated to buyers that the transaction was complete. Amazon also attempted to strengthen its information content to help browsers make Informed purchase decisions. The company hired freelance editorial people to write reviews and explanations running into some 750,000 words for its music site. Sound dips were also provided to help customers in making purchase decisions.

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Human Resources As on January 28, 2000, Amazon had 7,500 employees on its payrolls. All the employees were non-unionized. Amazon paid its employees base salaries, on an average slightly below those offered by competitors. At the lower levels of the organization, salaries were roughly on par with the industry but at higher levels, executives received relatively low pay. Amazon did not have any short-term incentive system. Cash compensation tended to be below the industry average. Amazon made up for this by giving stock options. Many potential employees sent their applications through Amazons website. Amazon's catchy employment advertisement on its website read: "As a pioneer in this new market place, we're building an important and lasting company - and making history as we do it. But we don't stop at providing products and information that inspire, educate and entertain our millions of customers - we also offer a work environment full of exceptionally talented, bright and driven people.... If you'd like to work with us to build a lasting franchise in this world - changing industry, let us know. Since this is very possibly the worst five-year period in history not to have equity ownership, you should know that compensation for all of our openings includes stock options." Amazon looked for smart people with experience, drive, and a flexible attitude. The company viewed technical skills as an asset and also attached much importance to foreign language skills. Amazon used standardized test scores of GRE as a measure of intelligence. The interviews, which usually took several months and rounds, were straightforward but rigorous. One of the employees remarked: "When interviewing you should know that you can challenge conventional wisdom, find creative solutions, think analytically, and stay focused on your goals. Moreover, reference checking is extremely tough." Employees were allotted to three distinct groups. The product development group looked after editorial, marketing, site design and site navigation. The software development group was responsible for information technology systems, website software development and implementation of new software tools. The supply chain and distribution management group
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managed the company's distribution network and reported to the chief logistics officer. This group also provided customer service. Amazon believes and expects the employees to work hard. A recruitment brochure mentioned: "We're demanding of our employees, so we look for people who are demanding of themselves." Amazon had many ex-Microsoft employees, who brought with them the relaxed but intense culture of Microsoft. An employee summed up Amazons work culture: "Dynamic, hectic, casual, professional, and everything in between, all at once. It's hard work, and folks do not blink at a 60-hour work week, everyone is here because they love it."

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Leadership & Management Style Bezos emphasized the importance of having a term orientation. While admitting that it would take many more years to consolidate the build on Amazon's early success, he explained that thinking long term had been a real factor behind his success: "Say you want to solve world hunger. If you think in ten year or five-year time frame, you get really depressed; it is an intractable problem. While some analysts found fault with Amazon for rapidly moving into diverse lines , others argued that Bezos had a clear vision. According to one writer, "At Amazon there is a sense of destiny beyond the organization's eventual profitability. Amazonian's view, the Cyber store will change the world of retailing, creating a blueprint for future retailers. If I were to write Amazon's mission statement it might be something like "To make the purchasing experience on the web fun." Some analysts felt that more than anything, it was Bezos' aggressiveness, which made Amazon a fearsome force. One of Bezos' former colleagues at D E Shaw paid ultimate tribute, "Any business With Jeff Bezos in it has a 10 times better chance of success than one without him." Bezos held regular meetings with his employees to highlight the importance of company's core values. One of the famous statements to employees was: " Think about how you can create real value five years from now because we can actually affect the stock price five years from now, whereas none of us have any control over what the stock price is tomorrow." His opening remark when he addressed employees would typically be: "Wake up every morning terrified - not of the competition but of our customers."

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Future Outlook In January 2000, Amazon announced the first layoffs in its five year history, cutting 150 jobs or about two percent of its workforce. Most of the job cuts were at the Seattle Headquarters. A company spokesman explained that the cuts were a part of its organizational review of manpower needs: "No one should read anything into regarding our strategy. We are still growing and expect to be hiring." The layoffs, however raised questions about Amazon's business and were likely to affect employee. The job cuts were also expected to tarnish the image of both Amazon and Bezos, who over time cultivated an image of the smart and nice guy, next door. As online retailing became popular with customers, traditional retailers such as Wal- Mart (the world's largest brick & mortar retailer) were increasing their commitment to e-commerce. WalMart had floated an online venture, Wal-Mart.com. Some analysts wondered whether Amazon could match Wal-Mart in its ability to squeeze suppliers. A redeeming feature, which gladdened the hearts of investors, was that Amazon had started making profits in its books business. A key issue for Amazon, as it entered the new millennium was whether to restrict itself to a few product lines or carry on relentlessly with its diversification efforts. Amazon had made its intentions clear about taking advantage of the scalability of the web and moving into new areas. Bezos reportedly had remarked that Amazon was willing to sell anything except cement. David Risher, Amazon Senior Vice President was quoted in the Economist: "Within four months of going into CDs, and within six weeks of going into Videos, we were the top selling sites for both products." Yet the issue of whether web retailing favored generalists or specialists was still to be resolved. Based on the web's scalability, one could argue that by building a brand name and a reliable supply chain, new product lines would involve only small marginal costs. Going by this logic, to maximize revenues, it made sense to sell all products to its customers. On the other hand, the success of niche websites like Ehobbies.com, Garden.com and E Toys seemed to indicate that specialists and 'Category killers' also had a role to play.
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Amazon had indicated its intention to act as a middleman between consumers and other e-tailers using its "Shop the Web service. The company's strategy seemed to be of being at the center of as many shopping transactions as possible. For instance, if a shopper asked Amazon for a product which it did not have, the 'Shop the Web' service would redirect the shopper to another e-tailer, where the product would be available. If the shopper purchased the product, Amazon would collect a fee from the e-tailer. For the year 2000, Amazon had six major objectives increase the number of customers and strengthen the relationship with them, expand products and services offered, achieve operational excellence in all areas, expand international operations, increase partnership programs, and achieve profitability in each and every business.

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Summing up the Indian Scenario

A) Advantages of E-Retailing

Sheer convenience Wider choice Better value Unique gifting opportunity Saves time and strain Micro targeting Mass personalization Know customer preferences Integrated source of information 24x7 Stores open No dress code Time saving No parking woes Escape from aggressive salespeople Vast resources for product and price comparisons Products can be found that are not available locally
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A) Bottle Necks in E-Retailing Lack of trust Payment gateways not clear Security concerns Transaction fulfillment is questioned No integration between online and offline stores Physical large shopping malls themselves are a new concept in India The inabilities to physically check out the items you are purchasing. Losing the power to negotiate the price and payment terms that may exist in local stores. Items ordered online are sometimes on backorder but the consumer is not always informed until weeks after the purchase is made. Not always knowing if a site is a legitimate and safe site to shop. Having to pay for shipping costs that far exceed the true shipping rate. Returns and exchanges can sometimes be difficult because of the lack of face to face negotiations. Restocking and shipping costs are often charged on returns made online.

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Conclusion
Theres little doubt that e-tailing is the future. But, thats just the point: it is the future. The present clearly belongs to B2B. There are several important lessons to be learnt in the transition from brick - mortar retail to the digital e-tail world. While skills like speed, differentiation, and branding are equally if not more important in the digital world, it is the ability to transform core operations and practices to this new medium which might make the difference between success and failure. Retailers need to examine the viability of such a transition, and look into the synergies of using the new channel of e-tail. E-tailers, on the other hand, need to revisit some basic retail functions, and develop further competencies in the areas of merchandising and demand forecasting. Realizing that future will require research, introspection, learning and educated effort. Lets then conclude by compiling a recipe for success for e-tailers the world over. Getting back-end systems into shape. Customers keep coming back only if earlier shopping experiences have been pleasant and successful. Quit gloating over the 75% success rate of on-line purchases. E-tailer must remember, he is competing with the neighborhood store, which, more often than not, has a close-to 100% record, and a smiling, friendly shop-keeper thrown in for good measure. Integrate! Integrate! Integrate! E-tailer must treat e-tailing site as the customer-facing end of a supply chain, not as a stand-alone antenna f or attracting Web-travelers. Focus on building strong bonds between every link in the supply chain (order processing, order status tracking, payment status, inventory level reporting, procurement) and build B2C store-front.

Build alliances. Many traditional brick-and-mortar firms have well-established supply chains (a case in point is our very own Apna Bazaar chain of supermarkets in
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Mumbai, Warana Bazaar in Warananagar), but lack the e-saviness that E-tailer can bring in. Get help. E-tailers heard this before, but its worth repeating: E-tailing isnt just about building a pretty web-site. An established management consulting firm will bring in the requisite skills to evaluate business plan, check out revenue models, help identify potential alliances and integrate supply chain processes with companys e-commerce initiatives. So E-tailer should go out there and create their e-future!

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Bibliography
Sr. No. Name of the Author Year Title of the book Name of the Publisher 1 2 3 4 5 6 7 8 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. www.amazon.com www.amazon.co.uk www.thestandard.com www.etoys.com www.travelocity.com www.egreetings.com www.ebay.com www.ecommerce.com www.etailing.com www.businessweek.com M.Rajshekhar Zeitmal Ramesh Kumar ICFAI Institute Magazine Newspaper Magazine Dec 18, 2000 ---Aug 3, 2000 ----Dec 24, 1999 Jan 7, 2000 May 15, 2000 Shoppers Stop: Adding New Colors Services Mktg What makes E-tailing tick E-Tailing The lessons online retailers are learning this season Walmart spins off E-commerce operations Shake out E-Tailers Business World Tata Mc Graw Business line ICFAI Business week E-Commerc Business week Harvard business review

May June 2000 Mix of Bricks and Clicks

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