Term Paper: Online Retailing Operates

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[. . .] Online retailers, take advantage of such advertisements using click throughs, popup banners, visitor numbers and email newsletters for offers of prizes and bonuses. For instance Umax site's popup windows offers Cyberian Outpost logos and deals for its customers is an example of how online retailers utilize their relationship with other online companies to increase their sales. Cyberian Outpost also has revenue generated from other sharing agreements that online playing game service like Mplayers that it can take advantage of. Dialogue box prompts for example motivate consumers to visit their site. If the number of visitors exceeds certain percentage then it would earn a set quota of revenue.


Some online retailers are of different opinions. Online retailers are keen on maintaining such difficult programming and affiliate programs because they cannot afford to survive on banner ads alone according to Toby Lenk of eToys. A retailer must have added services so that consumers will be motivated to choose it as the site for buying all its products. Any site that is not optimized to serve this purpose will loose consumer interest. "Since content sites operate much like a media company does-with ad rates that are based on the number of viewers the site attracts-driving traffic is enough." [Ricadela, 1997]. Today's consumer has become so sophisticated, that they judge a website for content rather then the glitzy detailing of window presentation alone [that is to say window presentation counts but comparatively lesser]. Rating of such a window can only be attained through the ability of the website to provide ample services. If a website for instance does not serve the purpose of certain segment of consumers, for example working mothers, then it stand to loose out a high number of consumer buys. Hence, online retailing is not about merely earning through popup or decoration but rather it should be about content as well.

Similar to the brick and mortar retailers, online retailers also have to maintain certain cost level for marketing and advertisement. The bulk of this cost is dominant in the amount transferable to cost per sale of these ads. eToys for example allotted 1% click throughs to eToys at 80 cents. This way it attracts a high rate of buyers to its website if the affiliates use its banner more often. These affiliates are not necessary small time webmasters but are large organizations like AT&T as well. In the case of eToys its partner is AT&T WorldNet. According to "eToys' marketing vice president, Phil Polishook, said AT&T WorldNet features eToys in its mall, and he expects between 10 and 15 such deals by year-end. While Polishook declined to disclose how much eToys pays AT&T WorldNet for each sale driven to eToys' site, Lenk said the amount for toy and book retailing ranges from 5% to 12.5%." [Ricadela, 1997].


Online CRM is different from those of brick and mortar. It is complex in a sense that the online retailer has to maintain a highly efficient system of technology that would ensure that all its advertisements are resulting into click throughs. On top of that click throughs does not necessary mean that the consumer will buy its products. For this reason IT plays an important role in determining "unique visitors," visitors who actually wanted to browse through their website. This is important because a random click through could earn the affiliate cents but it does not result in sales for the online retailers. For this reason any kind of affiliate program must maintain a system that would guarantee unique click throughs. This could only be done by acquiring high end technology. "Online retailers advertising on other sites, though, aren't just looking for eyeballs, according to a report from Forrester Research, Cambridge, Mass. They also want to attract better demographics and have flexibility in banner placement. One online retailer said it canceled its business with a publisher out of "frustration" with a host site that had "no creativity or imagination" when it came to placement and use of its banner ads." [Ricadela, 1997].

This is perhaps another reason why retailers are reluctant to come online. They are keen on the selling aspect of online retailing but they are apprehensive of the heavy investment they need to do before they could reap the profits. Of course the demand for online retailing is increasing day by day but it does not necessary mean that the rate of investment will decrease. If anything technologist companies are earning more and more due to the high demand in this category. The retailers, whose sole business arena is totally different from those of the high end technology depend on their partners [the technologist] wholly to strategize their websites efficiently before they can be accepted by the consumers or even appeal to their buying motivation. Hence, technologists in this sense play god with retailing companies.

The argument here, between technologists and retailers is that "Online retailers also can't expect the hefty fees demanded of vendors by print catalogs. Neil Farnsworth, general manager of business development for Microsoft's end-user customer unit, said he will only compensate retail sites for the cost of posting pages" [Ricadela, 1997]. While this argument is valid but they [retailers] must admit that the online retailing is not simply about catalogs. It is about providing convenience, ease of accessibility and saving time. If consumers are turned away from the retailing stores of their favorite brands, imagine the disappointment they have against the brand. If the retailers provide alternatives to the busy season or period of the year where the physical stores cannot accommodate for high traffic then they are liable to earn double the sales.

For example Shop.org is a division of online retailing of National Retail Federation. The basic motto of the organization to create a stronger consumer demand and improved profit margin. This according to shop.org could only be done through strategizing effective growth margin of upto 45% during 2001, which amounts to $65 billion. Despite these targets, it is expected that online retailers should adopt individual strategy before they could gain the desired profit margins. For example "Based on data on 550 retailers, 156 of which participated in a detailed survey, the report explores the opportunities and challenges facing online retailers of all stripes -- catalog-based, Web-based and store- based -- and the pronounced divide that has emerged in their performance and competitive positions" [United Press International, 05-02-2001].

Yet another issue that is of major concern for online retailers is the fact that the demands for consumers continue to grow but online retailers still struggle for profitability. One of the reasons being that online retailers cannot cope up with operational issues. Where performance of employees, flow of consumer acquisition and buyer conversion is concerned, the online retailers lack the sophistication of brick and mortar retailers. That is why they lack in profitability says Elaine Rubin chairman of Shop.org. According to him "There is a steep learning curve in becoming an online retailer -- those players that were unable to excel in all facets of this complex business just didn't make it to the end of 2000" [United Press International, 05-02-2001]. His comment to the United Press International briefing is coupled with a study result that shows "dot-com shakeout, online retailers were able to reduce losses as a percentage of revenues. Operating losses decreased as a percentage of revenue, from 19% in 1999 to 13%, or $5.6 billion, in 2000" [United Press International, 05-02-2001].

Competitive advantage

One of the major advantage of buying online is that consumers do not have to pay tax. For example a book from a bookstore will most likely have a 8.25% tax. But the same book could be bought from amazon.com without the tax. Many online retailers can afford to slash their prices below the market price of stores. This is a competitive advantage that online retailers use to compete against brick and mortar retailers. Since the potential loss of customers online is high government have reduced the level of taxation to encourage online marketing and buying.

This advantage is doing wonders for e-retailers in their battle against traditional high-street stores. If e-commerce grows as big as some predict, this could blow a large hole in tax revenues. In America, sales tax is levied at the state and local rather than the national level, and many state governors are getting nervous about the potential loss of yield from a tax that currently supplies around half of state and local-government revenues. Most other countries have different arrangements, but face many of the same issues." [The Economist, 01-29-2000]. In Hong Kong for instance the taxation pattern is applicable for all organizations. If the state cannot reach the online retailers then they will eventually have to pay through income tax and utility tax. For instance an online company will have to go through the bureaucratic layers before it is able to gain tax free status. This is a long procedure and requires heavy investments.

On top of that most of the… [END OF PREVIEW]

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