Principles of Retailing

This article focuses on the principles of retailing and how they relate to selling on the Internet. Although Business-to-Consumer electronic commerce captures the attention of the industry, Business-to-Business electronic commerce is the format that is predicted to reap most of e-business activity. Business-to-Business eCommerce has exploded. There is an exploration of eCommerce and how build a customer base on the Internet.

Keywords Business-to-Business Electronic Commerce; Business-to-Consumer Electronic Commerce; General Store; Internet marketing; Internet Retailing; Mail Order House; Site-centric Model; Symbiotic Marketing

Overview

Most individuals who study the field of marketing know the foundation of the concept. It is based on a marketing mix, which consists of four basic elements. These elements are product, price, promotion, and place. These elements are also known as the 4 P's of marketing. According to Golden & Zimmerman (1980), some retailers have expanded the retailer's marketing mix to include variables such as parking, delivery, store layout, displays, public relations, warehousing, transportation, telephone sales, credit extension, and guarantees.

Retailing is based on a transaction. In most cases, the customer will exchange money for goods and services, and the retailer will provide goods and services for dollars (Golden & Zimmerman, 1980). Therefore, one can refer to retailing as an interdependent system because both sides need each other in order to make a smooth transaction. In addition, customers rely on retailers for goods and services, and retailers rely on customers for profits. Up until the mid-1960s, marketing was considered the same as selling with the emphasis being on the seller versus the customer.

History of Retailing

Retailing has been a highly competitive field of business that has been around for a while. "Retailing is a major part of the United State's total distribution system; it is the last link in the system that markets and distributes products and services to consumers" (Golden & Zimmerman, 1980, p. 5). Butcher and McAnelly (1973) provided a timeline that traces the historical background of this field.

The General Store (Early 19th century)

The typical type of retail store in rural areas, small towns and villages. As the population became more urban in character, the demands for stores specializing in only one line or a few lines of merchandise increased. General stores carried a broad range of merchandise, but the goods included satisfied only the basic needs of the small local market.

The Specialty Store (1870s)

Was the most important type of store in the large towns and cities in the United States, and the stores only carried one or a few lines of closely related goods. Specialty store merchants promoted the cash system of selling, and offered goods at lower prices for cash.

The Department Store (After 1900)

Emerged in response to changing economic and social conditions. Specialty merchants were attempting to develop methods that would improve their competitive position. In the early 1900s there were over 8000 department store merchants in the United States. However, there were signs of decline by the 1930s.

The Mail-Order House (Latter 19th century)

Was a cross between a retail store and a wholesale warehouse that sold only by mail. Stores such as Sears and Montgomery Ward were successful in moving their products via the mail order catalogue.

The Chain Store (Began with the Great Atlantic & Pacific (A&P) Tea Company in 1859)

Was one of the most significant innovations in the development of retail institutions. Although data concerning the early growth of chain stores in the United States is limited, A&P had approximately 17,000 stores operation by 1929.

The Discount House (Early 1930s)

Modern retail stores that place emphasis on self service or operate with a minimum of sales clerks whenever self-service is not applicable. Tend to offer a wide variety of discounts without limited customer services. The philosophy of the stores is to sell nationally advertised or brand named merchandise at substantial discounts from conventional or list prices.

The Supermarket (First appeared in southern California around 1925)

Were primarily large, open-air, self-service stores with drive-in facilities. The first supermarkets were considered to be a device that independent retailers used to meet the competition of the chain store.

Today, we have ventured into the world of the web by selling and buying merchandise on the Internet from various sources around the world.

Application

ECommerce

Although Business-to-Consumer electronic commerce captures the attention of the industry, Business-to-Business electronic commerce is the format that is predicted to reap most of e-business activity. Business-to-Business eCommerce has exploded. This market became a trillion-dollar market by 2003, and was expected to have a 90% compound annual growth rate (Sprague, 2000). According to Sprague (2000), “B2B e-commerce represents another revolution that is reshaping business relationships and is causing dramatic shifts in channel power as information and communication imbalances disappear" (p.1). B2B eCommerce provides purchasers and suppliers with value suggestions that can decrease transaction prices and advance the monetary worth gained through corporate relationships. Value propositions such as these are able to provide opportunities for new players to enter the process of facilitating buyer and supplier adoption of eCommerce capabilities.

Effects of eCommerce on Transaction Costs

One of the most important objectives of B2B eCommerce is to change the cost and benefits of transactions. Kaplan and Garicano (2001) developed a framework that describes how B2B eCommerce can change transaction costs. The model presented five ways that this could be done, and they are:

• Changes in the processes. B2B eCommerce can enhance effectiveness by limiting the prices associated with current company processes. Improvements may occur in two different ways. The first way is to lessen the cost of an activity that is currently occuring (i.e. catalog orders being taken online versus by telephone or fax). The second way is to use the Internet to recreate the current process (i.e. Autodaq establishes Internet auctions for used cars that voids the shipping costs that are usually required with regular auctions). Each process improvement effort should be measured and evaluated to ensure that there are cost savings. This effort can be assessed by documenting the time and costs involved in both the current process as well as the proposed process. The difference between the two is the savings from the process improvement.
• Changes in the nature of the marketplace. Use of the Internet can: Decrease a buyer's cost of searching for appropriate suppliers, offer enhanced information regarding product details to buyers, and supply more adequate research about buyers and sellers.
• Changes in indirect effects of transaction cost reductions. “Better information about future demand through B2B e-commerce may allow a seller to improve its demand forecasts, and use that information to change its production decisions to better match demand. As a result, a buyer may obtain better information about existing and future supplies and use the information to change its inventory decisions” (Kaplan & Garicano, 2001, p. 4). Also, if the World Wide Web is able to promote a decline in the costs of dealing with transactions in the market, then even fewer transactions will be dealt with at the corporate, company level.
• Changes the degree of information incompleteness. Since buyers and sellers tend to not have similar or accurate information about a certain transaction, one of the parties might be at a disservice when measuring the desirability of a transaction. The Internet has the capability of changing the informational positions of buyers and sellers.
• Changes the ability to commit. B2B eCommerce has the ability to advance and hinder the capability of purchasers and sellers to adhere to specific transactions. The Web can also advance a buyer's chances of commitment by standardizing the process of the transaction and leaving an electronic trail.

Internet retail sales were expected to grow from $45 billion in 2000, or 1.5% of total retail sales, to $155 billion in 2003, and to $269 billion in 2005, or 7.8% of total retail sales expected for that year (Dykema, 2000). eMarketeer reported that business to consumer Internet retail sales in the United States was $343.43 billion in 2012.

Viewpoint

Building a Customer Base On the Internet

Many organizations seek to understand the benefits of the Internet as they move their products to the medium. However, they recognize that having an Internet presence does not guarantee a successful venture. There has to be a significant number of people visiting the site and buying the product. "In reality, many websites have very small traffic with over 90% of Internet traffic flowing through less than 10% of the most popular sites (Ennew, Lockett, Holland & Blackman, 2000). In order to achieve success, the organizations must be able to attract customers and establish a solid customer base.

"If websites exist in a market-space that is so vast that their existence is not a sufficient condition for gaining traffic and the development of a viable Internet venture requires customers, the building of a customer base becomes a key component of any company's marketing strategy toward the Internet" (Lockett & Blackman, 2001, p. 49). Additionally, the advancement of a customer base proves to be beneficial for other functions in the marketing movement such as market research and experimentation (Lockett, Blackman & Naude, 1998). Therefore, having an online customer base is essential for an Internet marketing strategy.

Approaches to Building a Customer Base

There are two different ways of approaching a potential customer base online. The models are site-centric and symbiotic marketing. The two models can be viewed as opposite approaches. However, some organizations have used techniques from both approaches. The site centric model will be discussed in this section. This model shows a variety of techniques that help to bring customers to a central site that offers a certain product. Ebay is an example of a website that uses the site-centric model. If a person is looking for a particular item, he may Google the item. One hit may be an eBay link if the product is available on its site.

In the site-centric model, customers are interested in a particular organization's brand that meets their requirements. The central site focuses on attracting and retaining customers so it invests in building strong brand recognition for the organization. For example, eBay has invested time in building recognition for Gotham Online as a site offering upscale name brand shoes at discount prices. A customer seeking shoes such as Stuart Weitzman or Kenneth Cole could go through eBay in order to take advantage of Gotham's discounted prices for these brands. Although Gotham Online has a site, the shoes tend to be cheaper on the eBay site because the auctions start at a lower price. If the customer wants a variety of upscale shoes and is not concerned about prices, she may go to Gotham Online site for more choices. The purpose of the auctions at the eBay site is to get the customer familiar with Gotham Online. One of the attractions is low price bid auctions for upscale shoes. In addition, there is a significant discount on shipping and handling charges for multiple purchases. Once the customer becomes comfortable with the organization, Gotham Online provides opportunities for the customer to sign up for a newsletter regarding upcoming sales on eBay as well as the opportunity to see the latest styles at the organization's site.

The Site-centric Approach

The site-centric approach utilizes an umbrella strategy that has a variety of techniques. All of the techniques have the same theme attract customers to the company's own web site. According to Lockett and Blackman (2001), some of the techniques include:

Portal sites It's either the first website a browser visits when logging in or a search engine that is used as a tool to find other websites. The log-in screen is usually put in place by the online service provider or the provider of the software browser. Examples of search engines include Google and Yahoo.

Purchase links to a portal site Companies may develop their own portal links and buy popular links in current key portal websites. For example, Citigroup agreed to pay Netscape 40 million dollars to allow access to the personal finance information for the Netscape Personal Finance site.

Purchase advertising After the customer purchases the product from the central site, a direct link is provided so that the customer can pay immediately at the organization's site. The larger portal websites are beneficial in selling advertisements directed at certain consumers. Some of these advantages include:

• Keywords can be used to select an appropriate banner advertisement
• Advertisements can be presented on Internet pages with related topics
• Regional-specific advertising can be provided on regional-specific search engines
• Detailed information can be collected in order to assist buyers with determining the success of specific-banner advertisements.

Direct e-mail: Registered users or subscribers to e-mail services — Customers can agree to receive regular emails or newsletters when the company has new products (Lockett & Blackman, 2001, p. 53).

Direct e-mail: Junk mail or spam-mail — Spammers use the unprotected servers of other companies to distribute emails about their products. Reputable companies do not distribute spam.

Conclusion

Most individuals who study the field of marketing know the foundation of the concept. It is based on a marketing mix, which consists of four basic elements. These elements are product, price, promotion, and place. These elements are also known as the 4 P's of marketing. According to Golden and Zimmerman (1980), some retailers have expanded the retailer's marketing mix to include variables such as parking, delivery, store layout, displays, public relations, warehousing, transportation, telephone sales, credit extension, and guarantees.

Retailing is based on a transaction. In most cases, the customer will exchange money for goods and services, and the retailer will provide goods and services for dollars (Golden & Zimmerman, 1980). Therefore, one can refer to retailing as an interdependent system because both sides need each other in order to make a smooth transaction. In addition, customers rely on retailers for goods and services, and retailers rely on customers for profits. Up until the mid-1960s, marketing was considered the same as selling with the emphasis being on the seller versus the customer.

The Internet will continue to play a significant role in the field of marketing. Many will need to further their studies on the benefits and barriers that the Internet has on the various marketing mediums. Theorists may gain new ideas about the Internet and evaluate whether current marketing theories can continue to be applied to the study of the Internet. Practitioners may continue to conduct market research to determine what consumers want, and policy makers must address topics such as security, consumer protection and taxes (Hou & Rego, 2002).

As the field of Internet Marketing explodes, there still will be a need for traditional advertising. Internet Marketing does not threaten the existence of traditional marketing techniques. Rather, it compliments the efforts. Although Internet Marketing provides valuable assets such as an increased awareness of brand name, traditional marketing efforts still can address some of the disadvantages of online shopping. For example, traditional marketing efforts can: Promote brick-and-mortar shopping experiences based on the opportunity for social interaction, and allow consumers to actually see and physically touch a product before purchasing.

B2B eCommerce has exploded and surpassed the profitability of B2C eCommerce. The new tools and techniques of the digital era have allowed these organizations to understand, develop and implement processes in a more effective and efficient manner. As a result, they are able to understand, develop and implement products with a greater value as well as create new channels for communication, supply chain integration, demand forecasting, and transaction management.

Terms & Concepts

Business-to-Business Electronic Commerce: Involves computerized processes that occur from one trading partner to another, and is carried out through increased volumes that are higher than other standard business-to-consumer (B2C) applications.

Business-to-Consumer Electronic Commerce: A type of electronic commerce where goods and services are sold from a corporation to a consumer.

General Store: Formerly the typical type of retail store in rural areas, small towns and villages. As the population became more urban in character, the demands for stores specializing in only one line or a few lines of merchandise increased.

Internet Marketing: The utilization of the World Wide Web to promote and sell products and services. Online marketing includes search engines, banners, e-mail, affiliate marketing, and interactive and email advertising.

Internet Retailing: Selling retail goods or services through the Internet.

Mail Order House: Was a cross between a retail store and a wholesale warehouse that sold only by mail.

Retailing: Every corporate activity that deals directly or indirectly with the selling of products and services to the individual or corporation that will ultimately consume them.

Site-centric Model: A variety of methods used to lure customers into a specific, central website that will then offer them a certain product or service.

Symbiotic Marketing: A technique of marketing where one manufacturer sells its final product to a separate corporation to be used to resale under a label that may already have established proper access to the market and its consumers.

Bibliography

Adams, M. (2013). Online sales tax could pump up retail values. Real Estate Finance & Investment, 23. Retrieved November 15, 2013, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=87804756&site=ehost-live

Butcher, B., & McAnelly (1973). Fundamentals of retailing. New York, NY: The Macmillan Company.

Dykema, E. (2000, September). Online retail's ripple effect. Cambridge, MA: Forrester Research, Inc.

Ennew, C., Lockett, A., Holland, C., & Blackman, I. (2000). Predicting customer visits to Internet retail sites: A cross industry empirical investigation. Nottingham: University of Nottingham Business School.

Golden, L., & Zimmerman, D. (1980). Effective retailing. Chicago, IL: Rand McNally College Publishing Company.

Hou, J., & Rego, C. (2002). Internet marketing: An overview. Retrieved May 3, 2007, from http://www.ebusinessforum.gr/engine/index.php

Kaplan, S., & Garicano, L. (2001). The effects of business-to-business e-commerce on transaction costs. The Journal of Industrial Economics, 44, 463-485. Retrieved May 3, 2007, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=6472761&site=bsi-live

Liu-Thompkins, Y., & Tam, L. (2013). Not all repeat customers are the same: Designing effective cross-selling promotion on the basis of attitudinal loyalty and habit. Journal of Marketing, 77, 21-36. Retrieved November 15, 2013, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=89746479&site=ehost-live

Lockett, A., & Blackman, I. (2001). Strategies for building a customer base on the Internet: Symbiotic marketing. Journal of Strategic Marketing, 9, 47-68. Retrieved on May 3, 2007, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=4782033&site=bsi-live

Lockett, A., Blackman, I., & Naude, P. (1998). Using the Internet/WWW for the real time development of financial services: The case of Xenon Laboratories. Journal of Financial Services Marketing, 3, 161-172.

Revell, J. (2013). How to survive a retail meltdown. Fortune, 168, 64. Retrieved November 15, 2013, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=91934167&site=ehost-live

Sprague, C. (2000). B2B eCommerce comes of age and drives shareholder value. ASCET, 2. Retrieved on May 3, 2007, from http://www.ascet.com/documents.asp?grID=149&d%5fID=246

Suggested Reading

How big can it grow? (2004). Economist, 371(8371), 67-69. Retrieved October 10, 2007, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=12853739&site=bsi-live

Saxtan, J. (2006). Revisiting the "wheel". Giftware News, 31, 6. Retrieved October 10, 2007, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=20914044&site=bsi-live

Stanton, A. (2006). A view from the other side: Customer behavior from the retailer's perspective. Marketing Education Review, 16, 71-74. Retrieved October 10, 2007, from EBSCO Online Database Business Source Complete. http://search.ebscohost.com/login.aspx?direct=true&db=bth&AN=21498850&site=bsi-live