Profitable Strategies in E-Retailing
Key Principles for Implementing a Long-Lasting, Successful Online Retailing Business as Demonstrated by the Best Practice Example Amazon.com
Bachelor Thesis 2013 65 Pages
Table of Contents
I. List of Abbreviations.
1.1 Barnes & Noble CEO Resigns Over Losses in the Digital Business.
1.2 Scope and Objectives of the Thesis.
1.3 Structure and Methodology.
2 Relevance of the Internet and its Significance for Retailers and Consumers.
2.1 Definitions of Terms and Concepts.
2.1.1 The different Aspects of E-Commerce and the Internet
2.1.2 Essential Components of Retailing.
2.2 Development of the Internet Technology and its Effect on Consumer Behavior
2.2.1 The Rise of the Internet in Correlation to Technological Progress and its Impact on Social Structures.
2.2.2 Effects of the Internet on Market Structures.
2.2.3 Consumers’ Online Shopping Behavior and Phenomena.
2.2.4 Challenges of Consumer Online Shopping Behavior for Retail Businesses.
3 Business Models for E-Retailing and Essential Strategies for Success.
3.1 Theoretical Structure of a Business Model
3.1.1 General Aspects and Retail-Specific Components.
3.1.2 Business Models in the E-Commerce Environment
3.1.3 Benefits and Limitations of Different E-Retail Business Models.
3.2 Substantial Parts of an E-Retailing Strategy for Achieving a Competitive Advantage.
3.2.1 Sources of Competitive Advantage.
3.2.2 The Business Model and Strategy Formulation.
3.2.3 Types of Strategies and Evaluation.
3.3 Challenges of Strategy Implementation as Evident in the Economic Reality.
3.3.1 Analysis of Failed Online Retail Businesses.
3.3.2 Identified Threats and Core Issues Regarding the Execution of the Business Plans
4 Amazon’s Business Strategy and Tactics for Succeeding in the E-Retailing Environment
4.1 Market Environment
4.1.1 Technological Conditions and Customer Behavior
4.1.2 Market Structure and Competitors.
4.2 Structure and Features of the Amazon Business Model
4.2.1 Customer Satisfaction as the Core Notion of Amazon’s Philosophy.
4.2.2 Leadership and Long-Term Vision.
4.2.5 Marketing-Related Aspects.
4.2.6 Financial Strategies.
4.3 Methods for Adapting to Changing Circumstances.
4.4 Performance Measurement
4.5 Criticism and Critical Evaluation of the Strategies.
5 Key Principles for Successfully Implementing an E-Retailing Business Plan.
5.1 Business Plan.
5.1.1 Success Factors.
5.2 Strategy Adjustment in the Process.
II. Bibliography. 1
I. List of Abbreviations
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1.1 Barnes & Noble CEO Resigns Over Losses in the Digital Business
The chief executive officer of the largest American book retailerBarnes & Noble, William Lynch, announced in July 2013 that he will exit the company. This news came in the wake of the publication of alarming quarterly figures in June and the subsequent public realization that the company had accumulated significant losses in its electronic business division. It had turned out that the company’s own hardware device, theNook, had sold very poorly, which reduced net revenues enormously. Consequently theNook colour tabletproduct line was discontinued. The Nook tablet was created to compete with the successfulKindletablet PC fromAmazon, which had dominated the profitable e-book market so far. The move to manufacture e-readers in order to gain grounds against the dominant Amazon illustrates that even traditional retailers struggle to keep up with the quickly changing market environments. Digital retailing is a rapidly expanding business that forces established brick-and-mortar retailers to put into practice effective e-commerce strategies. However, despite the introduction of a well-reviewed product Barnes & Noble was still unable to compete against Amazon’s market power. The result were $177m in net losses and the decision to restructure the company’s electronic business concept altogether. The problems surrounding the Nook and the difficult e-commerce endeavors of the formerly successful book retailer are symbolic of the troubles encountered by the whole retail industry. Previously powerful retail companies such asBordershave collapsed under the pressure from consumer oriented markets that demand quick adaption to technological advancements and improved convenience. These effects do not only affect book retailers, but other retail industries as well. The British retail chainMarks and Spencersuffers from the price competition of online stores and decreasing relevancy of its brand name due to some evident inabilities to adjust to consumer needs and the soaring popularity of online retailers. Amazon is still the most thriving company in the online retail environment and benefits greatly from the struggles of its competitors. Furthermore, this company appears to have found an online retail strategy that ensures market dominance, in spite of their competitors’ attempts to introduce equivalent products.
1.2 Scope and Objectives of the Thesis
The company examples show clearly that retailers are increasingly influenced by the Internet and the way consumers use it. Yet many of these businesses fail to implement profitable and sustainable online operations. Although the above-mentioned examples consist of traditional brick-and-mortar retailers with additional online stores, online-only merchants are just as likely to fail, if not even more so. This raises the question in what respect e-retailing businesses can improve their performances and which common mistakes can be avoided. This will be the focal point of this bachelor’s thesis. When observing the economic reality, there appears to be a disconnection between theoretical approaches for the successful launch of electronic retail operations and the practical strategies for implementing them. Hence, this thesis will analyze the structures and components of retailing business models regarding e-commerce. Then the issues involved in implementing these strategies will be discussed. In order to be able to discuss possible solutions for the identified problems, it has to be ensured that these suggestions are based on a best practice example. Since Amazon is the most serious threat to companies in the online retail business, it is appropriate to examine its strategies in detail. It is of particular interest in what aspects the online merchant surpasses its fellow competitors and what can be learned from its behavior in the market. Furthermore, to fully understand the reasoning behind Amazon’s approaches one has to look at what exactly makes customers use the company’s services. Therefore, it is necessary to properly analyze customer behavior in relation to technological innovation. The role of the Internet for people’s purchasing decisions and the subsequent relevance for e-retailers is of particular significance. Ultimately the goal of this thesis is to put forward strategies and principles for implementing a thriving and long-lasting online retailing business, which are grounded in the economic reality. The correlation of customer needs and the Internet, specifically how it is used for online shopping, is the foundation for strategies for dealing with changes in the economic environment.
1.3 Structure and Methodology
In order to perform a conclusive and logical analysis of the e-retail business and to be able to give recommendations for establishing a successful online retail operation, certain structures and methods for the line of argument have to be set up. The overall thesis structure is created to represent the logical path of arguments, which ultimately leads to the interpretation of the results found in the research. First, the relevance of the Internet and its role for the two main parties in the market, consumers and retailers, will be discussed. Central terms and ideas surrounding the online commerce and retail industry will be defined and explained. Furthermore, essential aspects of the development of the Internet with regard to technological innovation will be explained. Next, the interrelationships between the Internet, consumers and the retailers will be examined. This will lead to the explanation why understanding consumer behavior and the impact of Internet technology are vitally important for online merchants. Then the different business models of e-retailing and e-commerce will be further analyzed. It will also be explored what factors contribute to competitive advantage in the market and, subsequently, how these components influence the structure of online retailing business models. Consequently, it is necessary to illustrate in detail (using the examples of failed online retail businesses), where the specific problems of implementing these business models appear to lie and to identify the various sources of potential failure. Thereupon, the business model of Amazon.com will be studied and the company’s strategy for expansion and success will be looked at. Moreover, the identified features of the business model will be measured with specific metrics and compared to the competitor Barnes & Noble to emphasize the economic significance of Amazon’s strategies and to show clearly where sources of competitive advantage can be found. In addition to that, the development of Amazon’s profits and earnings, as well as other monetary indicators, will be analyzed in order to be able to critically evaluate the company’s business model. Finally, based on the findings in the examination of Amazon’s business practices, specifically how it deals with the various threats of implementing a re-tailing operation, and the listing of theoretical success factors, a strategy for implementing and planning a successful e-retailing business will be devised. Methodologically there are various sources that will be taken into account for the research. Firstly, there is technical literature dealing with the different topics of the thesis focus. However, it should be noted that due to the rapidly changing nature of the Internet and technology in general, in combination with the lengthy process of writing and publishing technical literature, most books, even the more recent ones, are inherently outdated to a certain degree. Nevertheless, a good number of the described observations, results and connections are still relevant and essential for the description of most topics. Moreover, to ensure that recent developments are taken into account as well, Internet resources will be another substantial part of the researched media, especially in relation to the strategies of Amazon and its competitors. Additionally, articles from peer-reviewed journals will be studied so as to acknowledge recent empirical findings and their impact on the issues discussed. As a means of illustrating the scope of the problems and developments, data and facts from different institutes of research, such as theNielsen Company, will be used. Furthermore, Amazon’s publically available annual report and its data serve as the basis for assessing the firm’s economic situation and the spectrum of the impact of strategic decisions. Whilst the official, legal name of the company isAmazon.com, Inc., the author of this dissertation will simplify references by using ‘Amazon’ when the company itself is meant and ‘Amazon.com’ when discussing the website. ‘Amazon’ also means the entire company with all its subsidiaries and all aggregated financial data. Amazon’s acquisitions and strategic alliances will be used as visible actions of its strategic decisions and general hallmarks of the company’s typical behavior in the market.
2 Relevance of the Internet and its Significance for Retailers and Consumers
2.1 Definitions of Terms and Concepts
When discussing the various components of electronic commerce and the Internet common terms have to be defined. This is essential for creating a solid base upon which further concepts can be reviewed in more detail.
2.1.1 The different Aspects of E-Commerce and the Internet
The terms “Web” and “Internet” are often used synonymously. However, this is a common misconception.
“The [Internet is a] physical network that links computers across the globe [and] consists of the infrastructure of network servers and communications links between them that are used to […] transport the vast amount of information on the Internet.”
Conversely, the term Web (short form of World Wide Web) refers to the virtual platform that can be accessed via a Web browser. Through this application it is possible for users around the globe to browse through the plethora of online content. Thus the invention and accessibility of the Web is the most important aspect in terms of utilization of the Internet for commercial purposes. Similar to the vast complexity of the Web there are various opinions on what constitutes the individual acts of electronic commerce specifically and how they should be distinguished from each other. Electronic commerce, abbreviated as e-commerce, includes all transactions concerning “buying, selling, transferring, or exchanging products, services, and/or information via computer networks.” Consequently the common basis for these actions can be seen in the trade of value, without which no e-commerce would take place. The term e-business is controversial in meaning and it is debatable in what respect it can be similar to e-commerce. Generally, electronic business is a more generic idea of e-commerce and can be used synonymously, if e-commerce itself is not narrowly defined so as to serve a specific purpose. In order to decrease the complexity of the analysis the concepts of e-commerce and e-business will be used with equal meaning. From a company’s perspective two types of e-commerce can be made out in relation to the physical presence: firstly pure-click, or pure-play, companies, which exist purely online, and secondly brick-and-click businesses that also have physical storefronts. Additionally, there is also a broad spectrum of terms covering all topics of online commerce (i.e. e-purchasing, e-marketing, etc.). Furthermore, most e-commerce activities can be mirrored on mobile devices. This is called m-commerce or m-business and is generally comparable to the functions of online commerce. For the purpose of the thesis these terms will not be explicitly defined as they are of little relevancy. Yet, one specific part of e-commerce has to be addressed, which is online retail, or e-retail. Electronic retail describes all retailing operations conducted online. Some authors prefer to use the term e-tailing, for the analysis, however, electronic retailing will be abbreviated to e-retailing as this is in line with the other terms used and avoids the use of new terms.
2.1.2 Essential Components of Retailing
Before discussing the various components of online retailing, the universal concept of retailing itself has to be defined. The traditional idea of retailing revolves around the concept of the retailer being the middleman, buying products and services of organizations with the purpose of reselling them to customers, while adding little to no value. However, this view only partially reflects the economic reality as bigger retailers control widespread and well-developed economic systems that are parts of different steps along the value chain. Any business that resells goods, no matter when and where, undertakes retailing. There are different types of retailers, depending on the criteria for distinguishing between them, for instance store size, broadness of the product line, service levels, type of products, store or non-store presence and organizational aspects. One central advantage of the existence of retailers is the shared benefit of customers and manufacturers that intermediaries “help reduce the number of necessary number of contacts” and can reduce the costs of transactions. This becomes evident when the main roles of retail are concerned. Particularly the specific functions of mediating between the customer and the manufacturer are important. Thus, aspects like offering an assortment of products in one place, shortening the time and distance of shopping for various items, managing transactions and streamlining value chain-related processes are essential components of the retailer’s role. Moreover, retailers increasingly merge aspects of manufacturing and offering services with their core competencies, due to the change of customer shopping behavior resulting from a difficult market environment. According to surveys the main motivation for consumers to visit retailers lies primarily in prices and convenience. On account of the improvements in technology and online accessibility, online shopping has gained increased significance and the expectations and motivations of e-retail shoppers have adapted accordingly.
2.2 Development of the Internet Technology and its Effect on Consumer Behavior
An increasing amount of shoppers goes online to have access to the broad variety of products offered. The Nielsen Company sees the main reasons for why people shop online in improved convenience, better price-value ratios and more choice. A comprehensive analysis on online consumer behavior predicts a 25% compound annual growth rate from 2012 to 2015 in consumer packaged goods sales in the US, culminating in $32bn total sales. These data combined with statistics that show that 274 million Americans can access the Web via their computers, and 117 million with their smartphones, indicate that it is vital for retailers to implement successful online businesses. Furthermore, Nielsen’s more recent, worldwide research in 2013 shows that mobile devices are still primarily used for other purposes than shopping, but whereas only 25% of Americans use their smartphones for online shopping activities, 43% of South Koreans and 43% of Chinese consumers already use their devices for mobile shopping. However, 62% of Americans use specific applications on their smartphones, of these 53% are shopping related apps. These statistics hint at the potential that lays in the utilization of smartphones and other mobile devices by consumers for electronic shopping activities. Thus, it warrants further analysis in order to fully understand the impact of technological advancements on consumer behavior and the subsequent consequences for retailers.
2.2.1 The Rise of the Internet in Correlation to Technological Progress and its Impact on Social Structures
The development of the Internet and the Web has deeply affected consumer behavior. The improvements in connectivity and other technological improvements have fundamentally altered the social fabric, especially since the widespread acceptance of Internet technology in 2000. Specifically three central factors were responsible for the introduction of the Web into mainstream culture: “cheap computers and mobile phones, low-cost Internet, and open source.” Moreover, the improvements in technology encouraged more communication between users and enabled a more active role of the consumer. This development, however, was preceded by years of slow take-up following the pace of innovation in communication technologies. From the 1960s to the 1990s the Internet technology was primarily used by military and educational organizations. Predominantly the developments of the e-mail technology and the Web, which could be accessed via first generation browsers, made the Internet valuable for average users. Furthermore, the introduction of user interfaces created a more appealing browsing experience. Subsequently the Internet and the Web became essential parts for the exchange of information and ways of making use of the stream of information were of particular interest for consumers. As the Internet established itself as a given concept, the technology for accessing the Web changed. As computers became smaller, handheld devices such as cellular and smartphones became more widespread users are now able to enter the Web in a plethora of places. Additionally, some platforms create interactions between consumers more immediate, e.g. social media services and applications. These communications channels facilitate the exchange of information among consumers and create possibilities for users to affect other users through their experiences and attitudes. Companies try to adapt and benefit from the vast possibilities of marketing and selling through the internet. However, being able to create a competitive advantage hinges on the capability to properly estimate future technological innovations and to decide which ones should be included into the business strategy. Therefore the focal point should lie on how the target consumers adapt the technologies and how it influences the shopping and overall consumer behavior. As the research conducted by the Nielsen Company indicates, the use of smartphones is wide spread. However, very few users outside of Asia claim to use the internet access for online shopping. While the total volume of consumer goods sold online is predicted to increase in America, e-commerce companies need a strategy to profit from the utilization of apps for online shopping, as they appear to be the preferred method of e-shopping on smartphones in contrast to using the Web access itself. The Internet not only changed customer behavior, but also various other forces in the overall market environment that need to be addressed. Companies that want to gain a competitive advantage in e-commerce have to understand the impact of the internet on market structures.
2.2.2 Effects of the Internet on Market Structures
The development of the Internet has had a huge impact on market structures in general. Comprehending the different forces within the ecosystem is fundamental for a company that wants devise a successful business strategy. Especially, e-commerce businesses, such as e-retailers, have to keep an eye on the broad range of forces that respond to and are influenced by the Internet. In order to properly assess the profitability of a certain market structure, one can divide the surrounding forces into microenvironment and macro environment factors. Accordingly, the macro environment perspective includes all external macroeconomic issues like culture, technological progress, governmental control and economy-related aspects. Particularly “reviewing the relevance of technological innovations to an organization is vital in providing opportunities for superior services” and proves to be of special importance to online companies. Moreover, recent jurisdiction regarding Internet-related problems has to be followed and can influence the entire market structure. The microenvironment encompasses all factors that impact the marketplace directly. As a means of understanding the effects of the internet on the interplay of the various parties involved in the microenvironment, Porter’s five forces model should be taken into account. It describes the various competitive forces that influence a company’s performance in any given market. These are “the threat of entry of new competitors, the bargaining powers of suppliers, the bargaining power of customers or buyers, the threat of substitute products or services and the rivalry among existing firms in the industry.” The bargaining power of suppliers decreases due to the rising utilization of e-procurement or online auctions by many companies. Furthermore, these methods create price transparency and common platforms, which also equalizes the access for all businesses. Additionally, companies can request that suppliers use information systems, which makes more resourceful supply chain management possible and helps reducing costs. Moreover, the threat posed by substitutes has increased through the Internet, especially for online firms. Generally, substitute businesses can be established easier and services and products, particularly digital ones, can be imitated with fewer resources. Also, consumers can find and react to information about substitutes more quickly online. The threat of substitutes is further spurred by lower barriers of entry for new competitors. Again, online businesses are more threatened, because founding an e-business is related with fewer costs, which results in high competition among e-businesses. Similarly, online marketing efforts are usually less expensive, while yielding respectable outcomes. As a result, rivalry among existing competitors is more intense, because online markets have become quicker and more efficient as the exchange of information is significantly simplified. Furthermore, online marketplaces are borderless and thus intensify global competition. However, of all the forces at play, “the increase in customer power and knowledge is perhaps the single biggest threat posed by electronic trading.” Due to the quick flow of information on the internet in combination with the widespread accessibility of the Web, customers can undertake a broad variety of pre-purchase activities for finding the best offer matching their individual preferences. Moreover, they can select from greater variety of e-shops, while switching suppliers is immensely facilitated. Since customers are the most sought after party by online businesses, it is of particular interest to further examine their shopping behavior. Understanding their thought process while shopping online enables online businesses to better meet their expectations and create profitable long-term business strategies. Thus, it can be concluded that “customer focus is impossible without an understanding of the customer.”
2.2.3 Consumers’ Online Shopping Behavior and Phenomena
The consumer’s bargaining power is of substantial importance. As a result of using the Web, consumers are far more empowered. They are able to assess deals and offers more easily, while they can access a wider range of products and services. Furthermore Web services such as search engines and price comparison sites provide consumers with quick and efficient methods to find information about the quality of products and the cheapest ways of obtaining them. Moreover, organizational buyers in the B2B-markets profit from the increase in transparency and can change suppliers at little to no costs. Consequently, companies need to address the development of the consumers’ methods of searching and purchasing goods and services online. As the online B2C retailers are the center of the discussion, it is of importance to analyze the individual’s e-shopping behavior. Traditional purchasing-decision models break down the process into separate steps, which can also be applied to virtual environments. However, the impact of the Internet on individual parts of the customer purchasing-decision model results in different types of the consumer’s individual activities than described in the conventional model. At first the consumer identifies a need for acquiring an item or service, followed by the subsequent decision to research options for the most efficient way of obtaining it. Then the user will evaluate the identified alternatives and choose the most suitable one. Thereafter, the purchase will be made, followed by the delivery. Lastly, the consumer assesses the purchasing process. Customers are influenced by a multitude of factors that impact their purchasing decision processes online as well as offline. Furthermore, online purchase activities include more determinants for shaping the user’s shopping process outside the traditional factors, such as cultural, social, psychological and demographic circumstances. Accordingly, customers can be influenced by their personal stance on online shopping, external marketing efforts, website efficiency, the merchant’s brand reputation and the product itself. Additionally, the technical component of e-shopping is important since most Websites require a certain degree of computer knowledge. Moreover, the product itself plays an important role in the process. Attributes like the product’s price and quality contribute to the decision making. The Internet can impact the stages of a user’s online purchasing process in various ways. Consequently, companies can make use of marketing techniques that aim at influencing the customer’s e-shopping process. As a result of the decrease in market entrance barriers because of the internet and the improved transparency in many areas of the online business, companies need to make sure that customers make a point of buying from them instead of other suppliers. Hence, businesses have to focus on the individual customer and have to “generate positive effects, which are generally observed as trust, customer satisfaction and loyalty.” However, in order to achieve this aim, marketers have to comprehend the miscellaneous influences of the Internet on the individual steps in the customer’s online buying process. Before customers decide to go online to research desired products, they are usually encouraged to do so by various incentives. These can come from traditional media or online platforms. Primarily print media and television are the most influential offline sources that inspire customers to actively research products online. Moreover, the role of traditional online marketing tools, such as banner advertisements, online communities and references to Web pages on physical items, is of substantial importance. Once customers are motivated to further research specific items, they seek out various information channels. According to a survey conducted byForresterin 2012, 54% of American customers resort to online resources so as to inform themselves before making certain purchases. Additionally, platforms likeGoogleand Amazon.com are used for research purposes by 20% and 19% of the participants respectively. Furthermore, opinions of others are substantially influential for customers’ online research and purchasing decisions. Particularly the recommendations of other users play a significant role. The process is called electronic word of mouth (eWOM) and is an essential influence on potential customers. Just like its offline counterpart, online word of mouth is a trusted resource for users who look for information about certain products. Recent research findings indicate that especially credible sources of electronic recommendations raise the likelihood that individual customers finalize purchasing decisions. Furthermore, user ratings representing aggregated and quantified information of users’ opinion are generally perceived as more trustworthy by the consumer. These factors shape the customer’s decision on what items they buy from which supplier. The impression that online search is a central part of the purchasing process for the majority of consumers is further supported by interview-based surveys. The efficiency associated with online search is a key motivator for shoppers to gather information online in the pre-purchase phase and choose, albeit sometimes unconsciously, a supplier that meets their expectations. Following the evaluation phase, buyers will make use of an electronic shopping cart, which refers to a website application that allows users to place their desired products, and sometimes services, into a virtual container. This process is analogous to offline shopping activities insofar as consumers then pay for the items in the basket at the checkout. Moreover, it is of special interest what kind of items customers shop for online. The goods sold online can “roughly [be] divided into two groups: small-ticket and big-ticket items.” Small-ticket items are products of lesser value and lower monetary commitment, whereas big-ticket articles are generally more expensive. When again focusing on the American e-commerce market, statistics show that the best selling product categories consist of small-ticket products like flowers, books, software and music, which make up an accumulated market share of 26% at $37,05bn in annual sales. However, big-ticket items, such as furniture, tools and small appliances, only account for a 3% market share. Thus, most products sold online can be described as low-risk commitments for the consumer. Finally, when a consumer decides to purchase an article he can usually select between various payment options ranging from virtual payment services such asPayPalto electronic money alternatives. Following the placement of the order the article is packaged and shipped. The customer can engage in post-purchase activities that are mainly initiated by the online merchant, such as acknowledging the latest updates and individually tailored offers by the shop and giving feedback through various communication channels. Ideally, from the merchant’s perspective, the user revisits the online store frequently and engages in further purchases. The analysis of customer online purchasing behavior clearly underlines the complexity of the process behind the placement of orders with an e-commerce platform. There are several forces at play within the individual steps throughout the process. Consequently, e-businesses first need to understand the challenges resulting from the various factors in order to be able to build a durable business strategy that faces the specific issues. Furthermore, it has to be highlighted in what respects B2C retail operations are affected by the developments in the shoppers’ behavior.
2.2.4 Challenges of Consumer Online Shopping Behavior for Retail Businesses
For 2013 B2C e-commerce sales are predicted to reach $1,221bn globally. Furthermore, the quota of internet users in Western Europe that will shop online is estimated to amount to 76.3% in 2017, while in Northern America and South Korea around 77% of online users will conduct online shopping by then. Since retail is about being in the right location, “online is now a location no retailer can afford to be absent from […].” Traditional retail is in decline whereas online retail is growing steadily. Moreover, retailing businesses with online and offline storefronts are influenced by the slowing sales in their physical stores, while their online presence, even though being profitable, is mainly threatened by the intense competition of online businesses. As B2C retailers have no choice but to implement e-retail operations, it has to be analyzed what issues they have to face in terms of assurance of customer loyalty and achieving customer satisfaction through online channels. Thus, creating customer satisfaction and ultimately customer loyalty is the key component around which a successful business strategy can be build. Based on the multiple steps of the consumer online shopping process, various areas can prove to be problematic for e-retailers when they try to achieve high customer loyalty. First and foremost, gaining the customer’s trust proves to be of central importance, since transactions over the Internet are mostly anonymous and make use of technology that both parties have to trust as well. Hence mechanisms for creating a trustworthy online environment have to be set in place by the retailer. Furthermore, the Internet technology does not allow for touching products or practically evaluate how they look, until they are delivered. This results in high return rates for e-retailers, which has to be paid attention to when a business plan is devised. Moreover, unsatisfactory order fulfillment conditions and lack of possibilities for comparing offers during the pre-purchase phase may lead to customer frustration. Additionally, when the perceived convenience of shopping online is lower than visiting a store and purchasing products directly, customers will prefer the easier option. Another problem is the low rate of users who follow through with a purchase versus the majority of unique visitors leaving the page without buying anything. Studies show that most users fill their e-carts with desired products and services, but abandon them later on for unknown reasons. For e-retailing businesses such behavior is of particular economic significance as one out of four times the shopping process is cancelled and the e-cart subsequently abandoned by the shopper. Further research, however, indicates that this phenomenon is not necessarily a sign of customer distrust, but that the e-cart is primarily used as an instrument for structuring the wanted products and keeping track of changing prices and special offers. Accordingly the overall website structure has to be adapted to the customer’s needs and understanding of the shopping process. Also, customers who select items for their cart are usually thinking about finalizing the process with a purchase. Thus, retailers have to make sure that their online presence allows for quick and simple purchasing options. After a purchase has been made, online merchants have to take care of efficient order fulfillment and offer possibilities for consumers to give feedback. This can help building a strong reputation and, most importantly, an atmosphere of trust. Furthermore, the e-business’ post-purchase services, such as on time delivery and quick reaction to negative feedback, are vital for ensuring customer satisfaction and future purchases. Particularly the merchant’s handling of product returns reduces associated risks with online shopping by the user and paves the way for the establishment of customer loyalty. Positive shopping experiences are fundamental for spurring favorable eWOM. Social media, online forums and chat platforms are the main sources for the dissemination of users’ opinions and experiences with online businesses. As these are difficult to influence by marketers, consumers are more likely to trust information originating from these channels. The range of challenges that stem from the customers’ online shopping behavior is essential when an online business model is planned. Generally, any business model should aim to generate or add value for customers. Thus knowing about the customers’ expectations and the purchasing process altogether is vital for implementing specific solutions to the identified issues in the business plan and model. Companies that make customers their main concern and build their whole business infrastructure on being able to anticipate and react to the customers’ needs are successful in the long term. However, apart from the customers there are other factors involved that are of particular importance for launching and maintaining a lucrative online business. Thus, the key components of a business model in general have to be analyzed, followed by a discussion of central aspects of e-retail business models and the associated issues with implementing them.
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 cf. Chaffey, D. et al. (2009), p. 79
 cf. Laudon, K. C./Traver, C. G. (2010), chpt. 6, p. 16
 cf. Turban, E. et al. (2012), p. 431
 cf. ibid., p. 433
 ibid., p. 434
 cf. Laudon, K. C./Traver, C. G. (2010), chpt. 6, p. 19
 cf. Turban, E. et al. (2012), p. 433
 cf. transactionAge (2013)
 cf. Lis, B. (2013), pp. 129-138
 cf. Hausman, A. (2012), pp. 286-289
 cf. Benusa, T. K. et al. (2012), pp. 323-324
 Laudon, K. C./Traver, C. G. (2010), chpt. 6, p. 20
 cf. ibid., chpt. 6, p. 20
 cf. Statistic Brain Research Institute (2012)
 cf. Turban, E. et al. (2012), p. 433
 cf. Chaffey, D. et al. (2009), p. 81
 cf. eMarketer (2013)
 Bradley, J./Thain, G. (2012), p. 216
 cf. Bradley, J./Thain, G. (2012), pp. 216-217
 cf. Turban, E. et al. (2012), pp. 434-435
 cf. ibid., pp. 436-437
 Blackwell, R. D. et al. (2006), pp. 177-178
 cf. Benusa, T. K. et al. (2012), pp. 323-339
 cf. Laudon, K. C./Traver, C. G. (2010), chpt. 6, p. 22
 cf. Ramanathan, R. (2011), pp. 255-257
 cf. Schiffman, L. G. et al. (2010), p. 283
 cf. Levy, M./Weitz, B. A. (2009), p. 562
 cf. Kotler, P./Keller, K. L. (2009), p. 79
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