Future of Online Retailing by megan

VCU Brandcenter

The Future of Online Retailing

Kim Frazier

Meagan Sackett

Sriram Venkitachalam

Dibakar Das Roy

Jessica Colbert

Kshitij Jain

An Overview The online environment is dynamic; in a flux of constant evolution, it is becoming more and more integrated into the everyday functions of modern life. Many believe that the Internet will one day overtake the traditional brick and mortar store interface as the preferred shopping destination for most Americans; however, this will not be the case. The future will be about the creation of a new retail platform merging the online and in-store experiences (Exhibit 1). Exhibit 1

Future Retail Platform

Online

F U T U R E

In-Store

By examining the current Netscape and the trends and implications for the future, one can see that there are many facets to examine as integral parts to the online retailing experience. One must not only consider the industry as a whole, but the businesses that have prospered and failed at their craft, and the shoppers who choose to make purchases onlineâ&#x20AC;&#x201D; all helping to push the industry forward. Many theories can be applied to aid in making predictions about the future, but truly, pioneering the brave new world of Internet retailing 10 years down the road is a difficult task; however, it is one that can be envisioned by taking a comprehensive look at not only the current state of the industry, but what it has the potential to be one day.

The Future of Online Retailing

The Current Netscape

Exhibit 2

The Online Retail Channel Today

I. The Business Backstage The Internet has evolved as an integral part of business today, as shown in (Exhibit 2). Businesses are finding new ways to manage the funds pulled in by the different components of

Revenues Decision Support Infrastructure The Internet has made its way up from infrastructure to decision support and now it is the fastest growing channel for revenue generation in the retail business.

their operations. Currently, more and more of them are choosing to incorporate the revenue gained from the Internet side of their businesses internally into their corporate information infrastructure and internal support systems. As a result, the online retail channel has grown rapidly and found its place among other strategic decisions, helping the business to achieve relevance and success.

Businesses have started to evaluate the role of the online retail channel with respect to their overall value chain. The use of the Internet as a retail channel offers limitless opportunities to deliver information, products, and services to other businesses and consumers in real time, in a more efficient and interactive way and at reduced costs. The table below shows the applications of the online channel in the value chain of a business (Exhibit 3). Exhibit 3 Business Department

Online Applications

Marketing

New Sales Channels, cost savings from reduced cycle time, real time customer feed back and services, customer relationship management, data mining and warehousing

Sales

Customized offerings, online purchases, sales promotions and offers

Purchasing

Supplier relationship management, purchase orders and money transfers in real-time

Production

Planning and control, quality control and assurance, custom made product/ bundles

Design

Product design, customer-based research for new products or services

Distribution

Inventory management, forecasting issues, supplier communication, real time distri bution tracking systems, faster delivery channels

and Supply Chain Management Human Resource Management

Recruitment, policy announcements, training

Product Development

Testing of new products, concept developments from customer feedback and research

Services

Customer inquiries, frequently asked questions, real time maintenance, online chat sessions

While it used to be the case that all that was needed to succeed in B2C Internet retailing was information technology, today the common theorem is changing. The businesses that have based their plan purely on the competency of The Future of Online Retailing

information technology without the development of distribution systems have failed, such as Egghead.com and kozmo.com. 1 Though there were two categories of companies that did succeed—mail order companies, such as Land’s End, that were experienced in handling business logistics, and brick and mortar stores, such as Best Buy or IKEA, that met the demands of their established customer base online, and banked on existing stores as delivery and return points. This illustrates the importance of logistics planning as the backbone of Internet retailing. In thinking about the differences between Internet and brick and mortar stores, another aspect that is commonly discussed and debated is the utilization of different pricing strategies. It is the general belief that prices online are far more competitive than the prices in brick and mortar stores. This is validated by a survey conducted by M.I.T. Professors, Erik Brynjolfsson and Michael Smith, who found that online prices were 9-16% lower than in conventional retail outlets. 2 Further, price comparison websites, such as pricegrabber.com, make it easy for online shoppers to find the lowest prices available online for most products, taking away the brand advantage from ‘value’ retailers such as Wal-Mart or Best Buy. This price sensitivity of online retailing has led to several major retailers setting up wholesale exchanges to encourage competition at the supplier levels and cut operating costs between 10-30%. For example, Agentrics formed out of the merger of the wholesale exchanges of Global NetXchange and the World Wide Retail Exchange. 3 While these exchanges lead to the reduction of supply costs to wholesale buyers, there is another factor that might lead to rising prices online. Though public availability of a seller’s prices typically leads to the competitive lowering of prices, in certain market situations, the inverse might be true.

Exhibit 4

Most markets have several competitive players, helping to bring down prices, however, within some markets with fewer competitors, prices might tend to rise, indicating some form of competitive price setting. 4 II. The Online Consumer of Today It was first important to identify the online shopper of today so we could identify the online shopper of the future (Exhibit 4). Currently, Internet shoppers are wealthier than Internet users who do not shop online and they are more likely to be below retirement age—52% of Internet shoppers

Enarsson, Leif. Future Logistics Challenges. Copenhagen : Copenhagen Business School Press, 2006.

Varian, Hal R., “When Commerce Moves Online, Competition Can Work in Strange Ways.” 2000. The New York Times. 8 February 2008. http://people.ischool.berkeley.edu/~hal/people/hal/NYTimes/2000-08-24.html

Sellers, Christopher K. “The Agentrics Way.” 23 January 2008.

http://www.agentrics.com/web/agentrics/company/our_history 4

The Future of Online Retailing

earn more than $70,000 a year. 5 Most online shoppers are 18-44. Specifically, women between the ages of 24-35 are the heaviest shoppers. This makes sense considering that women’s apparel is the top-spending item for the online shopper, followed by health and beauty items. “This is the generation that has grown up on the Internet. She does not use the mail to pay her bills. She does as much of her shopping as she can online,” said Paulina Sazon of Borderfree, an institution that analyzes Internet consumers.

Online shoppers also spend 47% more money across all merchandise

categories than the average American consumer. 7 Choosing to not only shop online, they are active participants in many other arenas of the online realm, such as blog writing, online networking, video postings, and consumer reviews. They are much more likely to be participants in these areas than those people who do not shop online. A survey conducted by the J.C. Williams Group showed that 29% of online shoppers had written an online product review previously, compared with 9% of off-line shoppers. Online shoppers are also more than twice as likely to have put video content on the Internet—19% vs. 8%. They are also increasingly turning to their online community or network for advice instead of traditional mass media. 8 60% of online shoppers use consumer reviews to determine their purchases both in-store and online. “It is indicative of the shift to an empowered consumer and the rapid fragmentation of media channels,” said Jim Okamura, a senior partner with J.C. Williams Group. The implications of this are huge, especially considering the fragmentation of media channels will only be increasing in the future. This study also found that online shoppers are buying a broader variety of products on the Internet, and the average amount spent by online shoppers in the previous six months was $454, up $7 from a year earlier.

However, it is important to know more about this integration of online and in-store shopping behavior. Currently, more shoppers are going online to price shop and research their decisions before going into the brick and mortar stores to make purchases. However, they are also using the Internet to research where to find that item that they covet the most. A recent National Retail Federation study showed the Internet has even more influence than was originally thought— nearly 89% of retired respondents said they regularly or occasionally research a product online before buying it in a store. As one can see, the current Netscape is one of promise and opportunity. It is a dynamic environment, gaining momentum, as each day the inevitable future becomes more of a likely reality.

Abama, Derek. “The Montreal Gazette”

J.C. Williams Group

The Future of Online Retailing

Shaping the Future: Trends and Implications I. Introduction There are many forces at play helping to determine a snapshot of what online retailing may be like in the future. The best way to determine this is to examine the trends that will have a hand in shaping the future and the implications if these trends do indeed come to fruition in the market. Though online retail sales have been growing by about 25% each year, they only account for 2% of all retail sales in the United States. However, it is critical that the percentage of Americans who shop regularly online is not growing. The serious implication is that the Internet does not appear to be building its customer base. 10 As a result, the increased sales volume is likely attributed to an increase in the amount of money that a fixed number of shoppers are spending online, and as for consumer behavior, we know that “never before have so many consumers been willing to overcome security threats, still shockingly bad (or boring) design, and delivery screwups.”

Because their spending power is so

massive, web-savvy consumers are just waiting for e-tailers to get their act together. In the US alone, e-commerce is expected to reap sales of $259 billion in 2007, representing an 18% gain over sales from 2006. 12 Forrester research estimates that in the United States, almost $400 billion of store sales—or 16% of total retail sales—are directly influenced by the web, as consumers research products online and purchase them offline. This will expand to a 17% compounded annual growth rate over the next five years, resulting in an influence of more than $1 trillion of store sales by 2012. 13 The Internet retail channel is definitely growing, the challenge for the future will not only be to grow the amount of money people who are already shopping online are spending, but also the number of people who are choosing to shop online. II. Trends The industry still faces some hurdles to capturing all of this online sales potential. For the most part, retailers' online and in brick and mortar stores don't have cross incentives. In-store employees don't make commission by sending shoppers online, and the Web site doesn't tell shoppers to walk into the stores. There are a lot of inhibitors to making the necessary cultural and systematic changes, but this will be very feasible in the future. The following trends and supportive cases help to illustrate the shaping of Internet retailing in the future.

Saad, Lydia. “Number of Online Shoppers Holding Steady.” 12 February 2008.

http://www.gallup.com/poll/21775/Number-Online-Shoppers-Holding-Steady.aspx 11

Trout, Dan. www.Trendwatching.com

The Future of Online Retailing

1. Searchandising Searchandising is a merchandising method that combines the act of searching with merchandising. It is a way for a company to reel in customers during their online shopping process, as well as being a way for them to get the most out of every unique customer they acquire. If a customer is looking for something specific, a company can use the method of searchandising to suggest other possible purchases. For example, if a customer is searching online for a red hat on a particular website, the same company might also suggest a pair of red shoes to purchase to match the hat. The concept of searchandising will evolve merchandising in the online retailing environment. Taking into account the current rate that the Internet is growing, there will always be more marketers and advertisers trying to connect with consumers while they are interacting online. This would be a very effective way to reach consumers; not only is the consumer searching through the content on the companyâ&#x20AC;&#x2122;s website, they are interacting with the brand on a deeper level. When consumers are searching for merchandise, it is a very intensive process and it is unlike any other interaction online. Consumers are paying careful attention because they want to make sure they are picking the right product at the right price. Marketers and Advertisers can use this advantage of searchandising to make consumers pay attention to their products and services. Mobile Fragrance Communication To further build on this concept of searchandising, there are a couple of new technologies under development that could make the concept of Internet retailing much more tangible. The first of the concepts is a technology developed by Kaori Tshshi Mobile dubbed Mobile Fragrance Communication. This enables a downloaded fragrance signal sent from a cell phone to be transmitted to a base station that will emit an actual scent. This same technology could be applied to the online channel and allow smell signals to be transmitted over the Internet. This will greatly increase the possibilities in interaction between the consumer and the product. The second major technology that could add another dimension to the concept of searchandising is the concept of being able to â&#x20AC;&#x2DC;touchâ&#x20AC;&#x2122; what you see on screen. This technology is being developed at the University of Buffalo, New York, and is already successful in replication of touch in a few circumstances. The technology, when fully developed, and launched in the market will revolutionize the way the Internet is seen forever, and will have a significant effect on the way retailing and merchandizing is carried on online. 2. Human Search Engines A human search engine is a search engine that utilizes human participation to filter the search results and assist users in clarifying their search request. The goal is to provide users with a limited number of relevant results, as opposed to

The Future of Online Retailing

traditional search engines that often return a large number of results that may or may not be relevant to the user. Human search engines can cut down on a lot of the clutter by sorting search results into relevant buckets and making the whole experience more enjoyable for the consumer. ChaCha.com In the future, there will be no more generic search engines to find one’s inquiries. Every search is differentiated by the person’s unique needs and wants. There is a company that is already taking advantage of this trend, ChaCha.com. ChaCha is a human search engine, and it is the only one of its kind currently in existence. It positions itself as a personal search secretary, with a live person guiding each consumer’s individual searches. One can chat with the live guide to help them understand exactly what it is they are looking for. These two-way conversations are the key to searching success. Instead of consumers talking to the brand, with ChaCha, and searchandising engines of the future, the brand will have the opportunity to talk back. ChaCha.com also automatically saves one’s searches for up to 60 days, which is another attractive benefit. 3. Social Networking Today, social networking websites are one of the most popular activities online. Currently, consumers are attempting to set up world-wide social networks, connecting themselves to almost everyone and anyone they have ever come into contact with. In the future, being connected to everyone will become less relevant to the lifestyles of the majority of consumers. Consumers will want to stay connected to the people that they interact with on a daily basis. Not everyone is connected through the same application online; this implies that websites will have to find a way to connect everyone and stay relevant to whomever they please despite which application they use. Nethoods: The New Social Networking Nichification is growing more and more popular amongst online shoppers, and this is being expressed in the most extreme level in the form of social networking. In fact, one can expect that experienced networkers will not only have a Facebook, Xing, Bebo, Linkedin, or MySpace profile, but will also spend time on smaller networking sites like Yideoz and DanceJam. So in 2008 and beyond, social networks of any kind are going more local, and even hyperlocal. “Neighborhoods, Streets, Buildings, and Floors will get their own internet and intranet sites; not just to promote the many qualities they have to offer their prospective inhabitants, but also to provide communal interaction and localized services.”14 Sometimes, timing is everything, and now that networking on a grander scale is in place, connecting locals, if not neighbors, is just a business opportunity waiting to happen.

Trout, Dan. www.Trendwatching.com

The Future of Online Retailing

LifeAt.com Launched in March 2007, LifeAt offers property managers a solution for launching a Nethood for their building. So far, over 335 buildings have joined. The property websites are private and password protected, for use by residents only. Besides offering a platform where residents can meet and communicate, the site also allows users to post classified ads and rate and review local businesses. In addition, property managers have the opportunity to post news about vacancies and maintenance work. By connecting people who tend to share not only a building but also similar socioeconomic backgrounds, and offering them a source of hyperlocal information, LifeAt is creating valuable links between cyberspace and the real world. The concept is likely to find a wider audience now that people of all ages are getting used to sharing information online. Open Social Interface This trend refers to the introduction of common APIs (Application Programming Interface) for web developers, allowing them to develop web applications that can be applied to several different websites, even allowing the consumer to have all this content from different sites on his own web page. This makes the retail and marketing tools that are currently in use on specific sites to become far more relevant and present on the Internet on many different sites. 4. Changes in Merchandising The top two most common and effective Web 2.0 tools that are in use today are the zoom and alternate zoom features. These are basic functions that a lot of companies are utilizing in their retailing environments online. Companies are beginning to implement more quick looks/rollovers and personalized site areas, including 3D views of how the merchandise looks on a consumer’s specific body type. Today some merchandising websites have a different microsite for every unique user; however, one day every merchandising website will collaborate and built one microsite platform that allows the consumer to compare different companies’ products on one web space. 5. The ‘Consumer Information as Entertainment’ Phenomenon All of this nichification is fine and dandy, until the bottom line is affected—the struggle is always to make sure that consumers are buying products, and something to watch out for is the trend that pushes consumer information as a form of entertainment. Because it is so easy to obtain information on the Internet, consumers are starting to view the

The Future of Online Retailing

whole process as a form of entertainment. Consumers are beginning to inform each other on the best of the best, which is great, but alarmingly, they do not feel the urgent need to actually purchase anything. 15 Consumer information as entertainment is a definite threat to the online retailing structure. In a way, it is a form of vicarious consumption— consumers can now vicariously consume everything and anything through the eyes of curators and other consumers, and the written, spoken, or taped reports they can freely share in this online forum. eBay eBay was the largest retailer for December 2007 and is an important entity among Internet retail companies as a company that provides a C2C platform for community retailing. While historically eBay has depended on being the market for the “long tail products” such as collectibles and rare artifacts, going forward it seems eBay hopes to focus on the sale of mainstream products. 16 What has made this possible is eBay’s built up database for buyer and seller rankings. The rankings have brought credibility to the platform, helping more online shoppers to trust their purchase of common products that were once only restricted to those who did not mind taking some risk. This also helps consumers see eBay not only as a platform for entertainment, but as a legitimate online store. This allows the entrepreneurial consumer to also feel free to engage in not only the purchasing of products, but the swapping, as well. The success of eBay indicates what is to come. With technology such as Paypal that allows any individual to accept electronic payments, the online transferring of real money is becoming much easier. The key will be providing differentiated, localized, or customized products. 6. Mobile Marketing After computers, mobile phones are the most widely used device to access the Internet. If there's one device that's going to introduce another few hundred million people to the online world, it is the mobile phone. This is not a new insight, and nor will it happen overnight in 2008, but for beyond 2008, this has the potential to be a huge idea. Consider the following: •

Right now, there are 2.7 billion mobile phones in use.

•

The number of worldwide mobile phone users is expected to grow to approximately 3.3 billion in 2011.

•

Globally, nearly 1 in 3 mobile subscribers will use a mobile broadband connection by 2012. This will represent over 1 billion users.

The phone is interesting because it is about being where the consumers are all the time, with the option for online activities integrated into the “real world” experience. Mobile marketing enables the opening of several possibilities, as all the functions of the Internet are added to the portability of a mobile device. This enables a consumer to look for products, make choices while on the move, and even pay for them. With big players like Yahoo, Microsoft and Google coming into the mobile market, there are bound to be some changes in the mobile marketing scenario (Exhibit 5).

Trout, Dan. www.Trendwatching.com

Hof, Rob. “The Future of eBay.”

http://www.businessweek.com/the_thread/techbeat/archives/2006/05/the_future_of_e.html The Future of Online Retailing

7. Television Enabled Search: Samsung has recently developed the technology of

Mobile Outlook 2008

web surfing on television with software called See and Search. This will result in the total integration of the television channel with that of the Internet, enabling greater interactivity with the consumer on television, which is traditionally a one-way channel of communication. The software will enable a watcher to instantly receive and conduct any

Merging of an iPod into a phone with complete Internet capabilities

marketing activity while watching normal television.17

8. Integration of the Online and In-Store Experience Little by little the experiences of shopping online and in-store are beginning to merge together to become a unified shopping experience for the con-

Exhibit 5

Google responded to Apple’s iPhone to come up with Google Phone, which means other mobile competitors reaching towards better applications to be made available on mobile

Brands and products present on the point of search integrated onto the mobile platform, and presenting stripped down versions of their web sites for mobile search

Creation of based models for the mobile platforms

Customer relationship management going mobile, a trend being gradually made popular

Specially designed software for mobiles will drive more consumers towards data plans

sumer. The Internet has demonstrated that it has the legs to expand its appeal and capabilities beyond the computer screen. Many brick and mortar stores are on the cutting edge of this trend. Bloom Food Lion grocery store’s new concept store, Bloom, is a great example of the combination of the online and in-store experience. They provide customers with hand-held scanners that allow them to check out and bag while they are shopping. The check out process is as easy as the process of exchanging money.18 Bloom also has an interface that integrates the Internet into the shopping cart. There is a screen that carries ads and targets promotions to the consumer’s specific buying habits. The consumer is able to download their grocery list to the computer on the cart. Their specific needs are then

Fruhlinger, Joshua. “Suzuki Offers Up Garmin GPS on all 2009 SX4 Vehicles.” 19 February 2008. www.engadget.com

Dodson, Donald. “Food Lion Opens First Bloom Concept Store.” March 20, 2008.

http://www.allbusiness.com/retail-trade/4298360-1.html The Future of Online Retailing

connected to a loyalty card that can be scanned into the grocery cart computer upon arrival at the store. It sends alerts of special deals that the shopper may be interested in based on their previous shopping habits. This interface also allows consumers to keep track of their spending habits once their items are put into the grocery cart. 19 In addition, Bloom provides consumers with special Kiosks for guidance. These Kiosks provide maps of the store, price checks, food suggestions, and recipes. Bloom is able to integrate this Internet technology in their stores because all of their computers are advertising based. If a consumer product wants their target to pay attention to their promotions, these computers are the perfect media vehicles to do so, and this has many implications for the future.

The Laws That Will Govern the Future Technology has facilitated the creation of a web of communication channels around the population base. These channels of communication are now the carriers of all marketing activity, connecting the buyers to the sellers in a relationship where the communication rests on an equal platform. As was mentioned earlier, interaction with the consumer is what is desired, much more so than a one-way communication. There is a direct relationship between technology and economics, and the relationship can best be seen when taking into account which ‘traditional’ laws of economics are affected when applied to the online environment. The following traditional economic models are of interest to online retailing: 1.

Moore’s Law

The Long Tail of the Internet Theory

How do these laws affect online retailing? Both of these laws deal with the impact of technology on economics and have a ripple effect onto the world of online retailing by:

Exponentially decreasing cost of operation as compared to ‘real world’ retail

Providing unlimited display and shelf space a compared to ‘real world’ retail

Radically decreasing the cost of products, their distribution and reproduction, especially ‘digital’ products, thus creating alternative business models

Cohen, Alex. “Grocery Shopping the Digital Way.” March 20, 2008.

http://www.npr.org/templates/story/story.php?storyId=18076155 The Future of Online Retailing

Moore’s Law Intel co-founder Gordon Moore’s law states that the number

Exhibit 6

of transistors on a chip will double about every two years. 20 (Exhibit 6). This law, when applied to online

Number of transistors doubling every 18 months.

bandwidth, storage, and processing, which are all important features of computing, shows how as

Number of transistors doubling every 24 months.

Itanium 2 (9mb cache) Pentium 4

10,000,000,000

technology advances, the costs associated with these 1,000,000,000

above mentioned elements of computing will decrease

Itanium

Number of transistors on an integrated circuit. 10,000,000

exponentially. The Long Tail of the Internet Theory

Pentium 3 Pentium 2 386

1,000,000

The Long Tail of the Internet is derived from Pareto or

100,000

Power Law statistical distributions, which can be applied

10,000

to Internet business models such as Amazon.com or

2,200

Netflix.com, or even search engine marketing through

486 Pentium

286 8086

8080 8008 4004 1973

1980

1990

2000

2004

Year

Google. Chris Anderson, editor of Wired magazine,

Moore’s Law

proposed the theory in his book The Long Tail. The Power Law distribution, also known as the 80-20 rule, occurs in statistical distributions in nature, and states that

in any given distribution, 80% of the effects come from 20% of the causes. The Long Tail of the Internet theory states that, contrary to the conventional Power Law distributions of sales in the real world, where 20% of the products account for 80% of the sales, the sales of the ‘miss’ products, i.e. that of Long Tail, will overtake the sale of the 20% ‘hit’ products. 21 (Exhibit 7). ‘Miss’ products can be defined as niche products that would have not normally found shelf space in the brick and mortar stores, who tend to stock high demand and mass need-fulfilling goods. ‘Hit’ Products are well stocked and easily available in the brick and mortar stores.

Exhibit 7

The Long Tail of the Internet Theory is important because it illustrates the fact that the dynamics of online retail are different from that of retail in the real world. This is because of two important inter-related factors: 1. The unlimited shelf space on the Internet leads to the display of products that would never have found their way to real world display spaces due to their relative ‘unpopularity’. This has given rise to specialty retailers who would have never found a large enough consumer base in the real world but are thriving online. 2. The larger variety available in online stores means that more consumers are prone to seeking out products that meet their

needs exactly, and do not merely have to fulfill their needs from shopping from the most popular options. 22 20

www.intel.com

Shirkey, Clay. Power Laws Weblogs & Inequality. 2007. Random House Publishing. pg. 110.

Anderson, Chris. “The Long Tail” 19 February 2008. www.wired.com/wired/archive/12.10/tail.html

The Future of Online Retailing

After exploring these key laws and the impact that they have on the economics of online retail today, it is possible to continue by making the base of our projections for the future. The impact of these laws will be further described in the next section, where detailed predictions and important possible scenarios will be discussed.

The Brave New World I. Introduction In 2006, it was determined that the Internet influenced 30% of all retail purchases—up from 22% three years ago. It is estimated that that number will increase to 45% by 2010. 23 The internet has opened enormous opportunities for businesses both big and small and across all industries since the last decade. However, the initial industry projections about online retailing taking over brick and mortar stores entirely have been proven to be no more than myths. The online retailing industry is still in its infancy and will continue to evolve into the future, serving as a supplement to the other channels of the retail industry. However, its role with respect to the overall retail industry will depend on many aspects, such as the nature of the industry as a whole as it develops, the size of businesses in the industry, and the impact of technological advances. In the future, the lessons learned in the online retail environment can further be applied to the finer aspects of operations management and supply chain management. For example, one rapidly growing aspect that can benefit from the advancement of online retailing is Marketing Engineering, which is essentially a computer-operated decision-making tool that uses statistics and modeling techniques to aid managers in making better and more informed decisions about budgeting, resource allocation, communications and pricing. 24 The key to success in the growing Internet retail channel goes far beyond the usability of websites—it is what lives behind the web pages that will be of interest in the future. As the number of online shoppers increases exponentially, it is going to be important to grow and maintain a loyal base of customers who revisit the same sites frequently. Having a wellsynchronized order fulfillment mechanism—the complete process that commences at the point of sale until the product is delivered—will be of prime importance. This is because disregarding the myriad of factors that go into the experience of Internet retail, six out of ten of the most reported problems with shopping online are related to fulfillment (according to a research conducted by Anderson Consulting).

II. The Store Experience 23

Zerkel, Errol. “The Internet in the Future.” The Washington Times.

Lilien G.L., Rangaswamy A., De Bruyn A., Principles of Marketing Engineering. Trafford Publising, 2007, p.2.

Fernie, John. Logistics and Retail Management: Insights into Current Practice and Trends from Leading Experts.

London, GBR: Kogan Page, Limited, 2004, p.175.

The Future of Online Retailing

Exhibit 8

In the future, there will be no separation between the online and in-store experiences. It will be a time of collaboration. Combining the best aspects of both mediums is the only way to experience the perfect buying and selling environment. There are many examples of combining the online and in-store experiences to compliment each other.

Future Internet Retailing Scale of Customer Intrusion

Presently, the in-store experience is more intrusive—with pushy employees and sales people than the online experience. In the future, these new applications will provide

In-Store

more ways for marketers to reach their target audience. The online experience will become more intrusive than the in-store experience (Exhibit 8). Combining the in-store experience with the online experience will meet in the middle

In-Store/Online

to make a happy medium on the scale of intrusion. This combined interface provides more of a service than disservice, and that is why consumers will welcome this concept with open arms. III. The Future Online Shopper

Online

So who is the online shopper of the future? Many analysts are predicting a rise in the number of retirees shopping online—currently, only 5% of them shop online often.26

Today’s future retirees will not only have the financial resources and leisure time to shop online, they will inevitably be more Internet savvy than current retirees and more comfortable with e-commerce (Exhibit 9).

Exhibit 9

So the group to watch out for today are the shoppers who are on the cusp of retiring within the next 7 to 8 years. They are affluent, with a household income of $100,000+. They didn’t grow up with the Internet, but everyday more and more it is being integrated into their lives. We can look forward to this next wave of retirees using the Internet for much more than just e-mail, offering online retailers much to look forward to. At the end of the day, we cannot forget the bottom line, in 2008 and beyond, Internet retailing is, and always will be about

hundreds of millions of middle class and high net worth consumers who constantly want to consume more.

IV. Case Examples

Trout, Dan. www.Trendwatching.com

The Future of Online Retailing

Redefining the Traditional Purchase Funnel We took a look at the traditional purchase funnel and realized that there were some fundamental flaws if we were going to apply it to online retailing. In the traditional purchase funnel, the structure is very rigid and confining. The structure suggests that one must move along through the funnel, “completing” one stage before one moves on to the next. It also suggests that there are clear delineations between each stage that narrow in focus from one step to the next. Once one is in the “Preference” faze, they have already ventured through “Awareness” and “Consideration.” However, when developing our model of the online retailing purchase funnel of the future, we identified certain flaws that could prove to be fatal. In our new funnel, the brand is above all else and each brand has its own, individualized funnel. Also in our funnel, the boundaries are not as artificial, much like the boundaries online are blurred. The whole structure is much more organic and does not suggest a hierarchy. “Search” and “Share” are two key phases in the online retailing purchase funnel. It is easier to search and share online than it ever has been, and these two features truly differentiate the online environment from regular brick-and-mortar stores. (Exhibit 10). Exhibit 10 Traditional Purchase Funnel

Future Online Purchase Funnel

Brand Experience

Search Interest

Learn

Share Buy

Source: The Martin Agency

petroTV petroTV is a gas station service that provides flat screen computers on gas pumps across the country. Today this company is utilizing their technology as a POP display, and they are in the beginning stages of a text messaging campaign. This campaign allows their consumers to text message a number to receive a coupon, not only giving the consumer added incentive, this coupon helps petroTV to track their success. Currently, petroTV is providing a one-way communication to their consumers; however, in the future, with the utilization of this technology, petroTV will have the capabilities to interact in a two-way conversation with their consumers. In the future, while the consumer is waiting for their gas to pump, they will be able to check the weather, their e-mail, and the latest news updates. The convenience stores can benefit highly from this service because while the consumers are checking their daily content, there are advertisements streaming around the screen, advertising products that are for sale in the convenience store. This prompts the consumers to venture in-store.

The Future of Online Retailing

V. Conclusion In the future, online retailers and consumers will be looking for new ways to visualize products. There will be no standard model showing how clothing looks on a person, instead, consumers will be able to see what the clothes actually look like on themselves. Consumers will be able to upload a full body picture of themselves in 3 dimensions. They will then be able to drag and drop clothing onto their 3D image, allowing them to visualize how the actual piece of clothing would drape on their body. This will inevitably result in fewer returns and happier customers because they know what the clothes will look like that on them. In the future, Broadband will also open up a whole new set of opportunities to make the shopping experience more fulfilling. David Gensler, a youth culture strategist, says, “Broadband will have a huge impact on sales growth because of how products will be seen.” 30-35 million people have broadband connections and about 45% of those people watch on-air broadcasts through their computers. 27 The number of broadband adaptors is increasing and this means two things that are eminent for online retail; visitors will be able to go to a website to request a web cast of products and a demonstration of their use. This will allow people viewing online the opportunity to see how the product is used. Also, when people are watching TV online and see something that they like, they will be able to scroll over the screen and click a product during the show. When they click on the product, they will be able to find out more about it, such as who makes it, where to find it, and other products like it.

10 Year Prediction I. A Visionary Timeline of Internet Retail Evolution "A Visionary Timeline of Internet Retail Evolution" (Exhibit 11) presents a few reasonable projections of the Internet Retail landscape based on recent technological breakthroughs that are relevant to the subject. Liberty has been taken in envisioning how current trends could come together to trigger consumer, marketing, and economical events in the future. II. 3 Scenarios for the Future The above timeline mentions individual events that might shape the future of online retailing. Based on these events, we have identified three key possible outcomes in the future. These events will build upon one another to form scenarios of extreme importance to the way retail, both online and in-store is viewed today. They deal with: 1.

The lowering cost and ease of reproduction of the digital goods, and its impact on online retailing business models.

Nethoods impacting retailing channels, and the consumer becoming from a brand advocate on these networks to a micro retailer. The other event that ties in with this is the moment of time when 3D printing and the impact it has on fragmentation and decentralization of distribution and manufacturing channels for brands all over the world.

Duncan Riley, “TecCrunch.” 3 May 2007.

The Future of Online Retailing

The final scenario deals with the prediction of all-pervasive presence of sophisticated technology in our lives, and the impact it will have in blurring the lines between online and offline retail.

The Zero Scenario Acting upon technology and its associated costs, Moore’s Law starts drastically affecting the price at which digital information can be reproduced in the online world. This digital information consists of goods normally ‘sold’ by retailers, such as music, movies, texts and information, software etc. This also spurs the growth of Peer-to-Peer file sharing, or ‘piracy’ as it is better known, causing losses worth millions of dollars to the respective industries. The music industry will be the first to react, as it explores alternative business models in the online retailing channel. The product is legally given away to consumers for free and most all revenue is earned through advertising. Alternatively, even artists put up their work for download, giving way to a pay what you want business model. Thus, advertising assumes the role of currency, and brings back the barter system to the world of online retail. Everyone Has One The 3D printer is an invention that even in its nascent stage has much promise. In the near future, companies will start using these printers as a means of decentralized production and distribution systems, radically cutting down shipping costs. Also, in the future, as Moore’s Law takes effect on these 3D printers, they will become increasingly accessible to the normal consumers. This trend would merge with the trend of the consumer as a micro retailer on social networks, to produce a scenario where the consumer is not only a retail distribution channel for a brand, but is also a mini manufacturing channel. He will be able to, therefore, produce a plethora of goods at home through his own printer, simply by downloading designs from a company. This in turn, creates a new breed of brands and retailers (due to the radically low cost of entering into the market, where all one has to provide is the concept) adding to the long tail of the Internet. The Matrix is All Around Us This is a scenario that suggests an all-pervasive web that humans will weave around themselves in the near future. Based on the proliferation of digitized information streaming around us, and the constant evolution of technology to more sophisticated levels, this concept is imminent. There is already technology that is integrating the web into other forms of media, and unifying the three screens in our lives into one. The television will soon be used for search. We will soon be able to smell, see in perfect 3-Dimensions, and also sense touch over the web. Intelligent surfaces that interact with us and our personal digital devices will soon be ubiquitous. What does this say for online retail? Well, the online world will become omnipresent and a close replica of reality. This means that online retail space and experiences will expand to all spaces, and surround us in our environment. The lines between online and in-store retail will blur.

The Future of Online Retailing

Conclusion Though we have provided a comprehensive look into the future of online retailing, there are still many factors that will play a role in the shaping of the future that remain unanswered. What would be the impact and influence of increasing carbon footprints with transportation of goods from the different corners of the world? What role will environmentalists play in the growth of Internet retail? Today, one can already see the effects of environmentalism in several sectors such as electronic goods, fashion, food and fresh produce amongst others. Today, marketers are already using environmental friendly packaging and reverse logistics as competitive advantages. Besides price aggregator Web sites, one can expect that other Web sites would spring up that compare products and marketers not just on price but on how much carbon footprint one leaves over the other. How will import and export regulations of different countries be influenced by the force of Internet enabled worldwide retail? One can expect that governments that see the opportunity in their states participating in a seamless global retailing market would move to outsource their import and export duties to one unifying organization. Simply put, one can expect interested governments to have a movement similar to the one behind the installation of the Euro currency that promotes seamless business across Europe. Will the Internet choke? If so, at what point will the physical growth of the Internet infrastructure not be able to keep up with the digital richness of online marketing? There are many who are skeptical of the extent to which the Internet will grow as a vessel of information and marketing activity. The first point to note in this case is that being the organic entity without any sort of controlling body that the Internet is, it might at one point become too vast and littered with irrelevant and often false information, leading to a point where it might have to be radically re-structured and even â&#x20AC;&#x2DC;shut downâ&#x20AC;&#x2122;. There are also concerns regarding the rate of exponentially increasing content and the fact that the present bandwidth made available by Internet Service Providers may be easily exhausted over the coming years. This would mean that huge amounts of investments will have to be made in order to strengthen the bandwidth capabilities, thus making the Internet more expensive as a commodity. This in turn, would lead to a lot of people who are currently dependent on it for their economic activities to restructure their operations. The third scenario that is possible is that the Internet, being a product after all, reaches the maturity stage on its product life cycle, after which its importance and demand start waning. An alternative to it might be developed, and it could be something that none of us have ever imagined, leading a shift from this platform altogether. All this said, the Internet, and retail on it is still growing at a rapid rate, and no alternative technology to it has even been mentioned as being spotted on the horizon. The future will be about discovering the answers to each of these questions through a commitment to integration at all costs. Internet retailing of the future will not only utilize new technology, but a new conception of what it means to purchase and sell goods through the online interface. It will be a time of great change, big ideas, and creative thinking will be rewarded.

The Future of Online Retailing