E-Tailing and E-Retailing vs Business DisruptionsAtul Khurana
Online retailing or e-tailing is described as transactions that are conducted through interactive online computer systems, which link consumers with sellers electronically, where the buyer and merchant are not at the same physical location. In a short space of time, internet retailing or e-tailing has firmly established itself as a viable alternative to store based shopping.
Snapshot of Traditional Retailing on various dimensions/ perspectives
- Location and Presence
- Physical branded goods easily identified and found
- Most traditional and oldest location for retail
- Commands attention in the retail landscape
- Use of store space and proper assortment
- Signage other product information tools
- Promotional Activity
- Pricing strategies and campaigns can be implemented on a daily basis
- Inventory Management
- Product must be available at multiple store locations to maximize purchasing opportunities
Strengths of Traditional Retailing System
- There is an established brand value/image
- There exists an established quality
- Merchandising skills exist
- Consumer acceptance of current proposition
- Buyer can touch and feel products
Broad Differences Between Traditional Retailing And E-Tailing Leading To Business Disruptions
- In India, at present, most retailing occurs through physical stores, with existing operators. The importance of location has been stressed in traditional retailing. The physical location of a store is seen as a source of competitive advantage as it attracts the customer attraction.
- The most prominent difference between traditional retailing and e-tailing is the replacement of human-to-human interaction with human-to-machine interaction. While store layout is one of the decisive factors in traditional retailing , screen depth, browse and search functions, indices, image maps and e-store design quality are an integral part of e-tailing.
- Many buying functions seem personal and have no correspondence in the e-store
- In traditional retail environment, retailers can use the aesthetic design to create a desired possible design aspect that would help generate a favorable store atmosphere
- Manipulating websites is relatively easier, cheaper and can be done more flexibly.
- In the traditional retailing system both the retailer and manufacturer control over the presentation of the product. The manufacturer controls the packaging, but the retailer executes the visual merchandising and signage that provide the context for the package. On the e-tailing system, the e-tailor controls the product representation as the product is not physically present in front of the customer. Instead, the e-tailor decides how to represent the presence of the product as part of the information mix for the site: images, text and hyperlinks among other elements.
Waves of disruption
- The price war Discounts have always been the biggest crowdpullers in retail. Held on specific occasions a few times a year, shoppers usually look forward to these annual events with high expectation and excitement. Online retailers have successfully leveraged discounting as a mainstream business model. From being a much anticipated annual event, discounting and sales have become a way of life. As a result, price has emerged as the biggest differentiator driving consumers to shop online or in-store. Online retailers have successfully managed to wean away customers on the basis of this strategy alone.
- The Great Online Shopping Festival which was hosted for the third time in 2014 has given us our very own version of the American Black Friday sale which is known for the best deals on products and is also the biggest sale in the US. With participation from nearly all e-commerce players as well as major FMCG and consumer durables brands, the festival has been a huge success. Special sales during special occasions such as Diwali, Republic Day, Holi, etc. and occasions created specifically to drive traffic like the ‘Big Billion Day’ generated a huge sale, but, have disrupted the ‘sales calendar’ for the instore retailer and the industry is seeing sales becoming a norm throughout the year rather than being special events. In fact, so fierce is the competition, that e-tailers are also clearly seen trying to outdo each other by offering steeper discounts as often as possible.
- Big Billion Day and the Savings Day Sale During these sales, which were launched by two major e-tailers in the country, deep discounts were offered on most product categories from consumer electronics such as laptops, mobile phones, cameras to apparel, footwear, homeware, kitchenware, etc. Claims by certain retailers indicated single-day sales of over 600 crore INR, notwithstanding widespread complaints about technological hiccups and frustrated consumer experiences.
- Online retailers also experimented with the appetite of the burgeoning e-customers in India. Apart from planning sales coinciding with the usual holidays, some have announced sales on non-traditional days and have found success. Having received an overwhelming response, and just like in the case of its predecessors, the e-tailer soon ran out of stocks and in some cases, even had to procure additional stock from fellow online retailers. This proved that customers are conscious and receptive to these ad hoc discounting strategies. An interesting point of difference is that this sale had several offline retailers hosting sales as well.
- The interpretation of government regulations for e-commerce companies has been a major source of discontent among offline retailers. While e-commerce companies don’t have to deal with overhead costs such as rent for real estate, they have also been getting away with selling products way below the maximum retail price, without factoring in even profit margins, thus raising questions about predatory pricing practices.
- From an offline retailer’s perspective, this has been a disturbing trend. Launching long anticipated products following their success in foreign markets has always been a crowdpuller, regardless of how premium the brand. While the brand can use the online launch to test demand, a second launch in physical stores might or might not garner as much attention, especially in the case of already popular products.
- Big format offline retailers have even gone so far as to refuse to stock products which were first launched online. Demarcations have been established, disallowing the sale of certain ‘experience’ products online since it may lead to brand dilution and customer mindscape disconnect. Consumer electronics companies, part of the bestselling category in online retail, have especially faced this problem.
Disadvantage of E-Tailing
- Not all customers have access to the web, as they do to the postal system. This is a temporary issue as the evolution of the web continues.
- 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. Therefore different user behaviors (navigation schemes) need to be learned for each e-tail store. This is a temporary issue as the evolution of the web continues.
- Trust, security and privacy concerns prevail. Consumers are concerned with the use of the data they provide during transactions.
- Graphic presentation is not as compelling for the web as it can be for catalogs. This is a temporary issue as the evolution of the web continues.
- Security issues – Security issues hold the center stage when it comes to consumer concerns while shopping through the online media. A lack of trust and privacy concerns prevents a lot of consumers from making online purchases. Consumers are also concerned with the use of their personal data provided during the online transactions.
- Customer retention – In e-tailing, an increase in the customer retention by 5% leads to a corresponding increase in profits by 25%. Most of the people buying on the Internet do so out of curiosity and this makes a repeat purchase highly unlikely.
- Unsuitable for certain product categories – In case of product categories that require relatively higher customer involvement, the e-tailing route is found to be grossly inadequate in providing sufficient information to the customers. Examples include retailing of products like clothes, cosmetics etc. Most customers are comfortable buying books and music on the Internet because the information required for making a purchase and the customer involvement is low. However, in case of a blue Trouser, the customer may want to know things such as: Which shade of blue is it? How does it feel on the skin? How easily does it crease? The traditional retailing does not suffer from such a problem. In the non-standard product categories, the Internet offers limited amounts of crucial information to the customer. In such cases, only the seller knows about the true quality of the trouser and this leads to an ‘information asymmetry’.
- Shopping is still a touch-feel-hear experience – some 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.
- Complicated medium – Ease of use is a problem, as the web design may suffer from high complexity bordering on total chaos in some cases.
- Navigation hiccups – E-tail stores do not have standardized designs in comparison to the physical retail stores and product catalogs. Therefore different user behaviors (navigation schemes) need to be learned for each e-tail store. This is a temporary issue as the evolution of the web continues.
- Website design flaws – Graphic presentation and aesthetics may not be as compelling for a web site as in case of a physical retail store or a product catalog. This is a temporary issue that may resolve with the evolution of the web design.
- Limited access to the Internet – Not all customers have access to the web, as they do to the postal system. This is a temporary issue as the evolution of the web continues.
Businesses thus are getting disrupted. Legacy Businesses, Traditional Markets, Physical stores which are more a part of our routine are suffering.
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