Retailing on the Web

By Christopher Gregson

November 23, 1996


Statement of Purpose

This paper examines the state of retailing on the Web. It first examines the needs and basic behavior of shoppers everywhere. It then discusses important differences between online and offline space, and how these differences affect the shopping experience. Finally, it analyzes three online store-Violet, Amazon, and Firefly-to discover how retailers are adapting to the online environment, both successfully and unsuccessfully.

This project was undertaken as an assignment for The Impact of Multimedia and Networks, a class taught by Howard Besser at the Haas School of Business, University of California at Berkeley. You may contact the author with comments at gregson@haas.berkeley.edu.

Outline


Introduction

Online shopping is growing explosively as more and more people venture online. At present, online shopping is a small part of online commerce, and an even smaller part of the retail industry as a whole. Nonetheless, it holds the potential to significantly change the landscape of the retail industry. Fundamentally, retailing is about distribution, about giving customers access to goods and services. Online shopping provides a powerful new way to reach consumers and distribute goods, and consequently it will inevitably challenge current modes of business. For this reason alone, it is a topic worthy of study.

However, online retailing has significant obstacles to overcome before it can become a powerful force of change. Obviously, the online environment is quite different from the offline environment, and this difference completely changes the shopping experience. In order to become successful, online retailers must understand the nature of their new environment and find ways to adapt to it successfully.

This paper examines in depth the challenges online retailers face, and how three particular stores are coping in the online environment. This paper will first look at different customer types and their respective shopping needs. It will then examine the differences between the online and offline environments. Then it will evaluate the strategies, and the resulting successes and failures, of three representative online stores-Violet, Amazon, and Firefly. Finally, it will summarize the state of retailing on the Web.

Customer Types

Before we look at online space, it is important to understand the needs of online shoppers. Shoppers needs are fundamentally the same, whether online of not. In fact, there are three universal types of shopping behavior that are independent of the medium, and that must be met in different ways online.

First, there are shoppers who are just browsing. These customers are shopping for entertainment. They don't have anything in particular that they want to buy, but they may buy if they find something really great. These shoppers need to be entertained and guided through the shopping experience. Retailers can serve these shoppers by suggesting unusual items that may inspire someone to buy.

Second, there are shoppers who know exactly what they are looking for. These shoppers are highly focused, and more likely than not view shopping as a chore rather than as entertainment. These people want convenience, speed, and good customer service in their shopping experience. They also want to be able to locate and buy what they are looking for with minimal hassle.

In between are shoppers who know they want to buy something, but aren't sure exactly what. For example, someone might want a book on financial planning, but might not know exactly which book on financial planning to buy. These shoppers want something in between. On the one hand, they want a focused, easy shopping experience; on the other hand, they want to examine different items that might be appropriate and weigh their choice.

Whether online or offline, stores must serve the needs of different customers. In the offline environment, stores accomplish this by positioning and by offering different kinds of services. For example, a eclectic boutique would be targeted at browsers, and possible at shoppers simply looking for a gift. By contrast, a drugstore would be targeted to focused shoppers, but would also cater to impulse buyers by presenting special items in addition to toothpaste. Without a doubt, the online environment offers special challenges and opportunities to retailers that demand a different way of doing business.

The Qualities of Online Space

In addition to understanding different types of customers, it is also important to understand the distinct qualities of the online environment. In City of Bits, William J. Mitchell addresses this issue by exploring four dichotomies of offline v. online space. His thoughts are highly relevant to online retailing, and are summarized below:

Spatial/Antispatial

The first dichotomy is spatial v. antispatial. This observation points out that online space is two- v. three-dimensional. The online world is a collection of flat documents, rather than a collection of spatial rooms. In addition, online space is location- and distance-independent. You can always find an offline store at a particular location, but you have no idea where an online store is really located. An online store could be staged from Akron, Ohio, but it actually exists on desktops everywhere from Tucson to Bombay.

An online store offers the opportunity for distance-independent shopping and worldwide distribution, but it also offers the challenge of creating a great shopping experience in only two-dimensions.

Corporeal/Incorporeal

The second dichotomy is corporeal v. incorporeal. This dichotomy means that everyone and everything online is disembodied. People have names and identifies online, but they are not attached to a physical person. In addition, merchandise can be represented by illustrations and photographs, but it can't be touched, smelled, examined, or experienced in any nonvisual way.

This dichotomy poses challenges for online stores. How do you offer good customer service when there are no clerks in the store? How do you make merchandise attractive when customers can't really experience the goods?

Synchronous/Asynchronous

The third dichotomy is synchronous v. synchronous. This dichotomy indicates that offline, in everyday life, there is a time and place for everything. People eat breakfast in the morning, lunch at midday, and dinner at dusk. People commute to and from work, and sleep at night. Stores open and close. But online, the cycle of everyday life breaks down. People come online from all over the world, from many different time zones. Life online must necessarily become detached from the cycles that govern life in a single location.

This dichotomy presents an opportunity for stores to remain open 24 hours a day with constant traffic. Since online stores are automated, they do not even need people to run them at odd hours of the night.

Narrowband/Broadband

This final dichotomy, narrowband v. broadband, is about access. Offline, access is determined by proximity; online, access is determined by bandwidth. As Mitchell stated so well, "The bondage of bandwidth is displacing the tyranny of distance." Offline, a good location is crucial to a store's success. Online, distance is irrelevant. However, customers must have adequate bandwidth to access the store (and increasingly, a 14.4 modem, a regular phone line, and a browser, especially Microsoft Explorer (SLAM!), just won't do the job).

This dichotomy presents a design and backend challenge to online stores. Online stores must take care to make themselves technically available.

Case Studies

Now that we have covered the necessary background material, it is time to evaluate three prominent online stores to see how well they are adapting to the online environment.

Violet

We begin with Violet. What is Violet about? Where has it succeeded in retailing online? Where is it still struggling? Violet is an upscale, eclectic boutique. It offers a few dozen items with high price tags and lots of appeal. The store is targeted at browsers and gift shoppers.

In my opinion, Violet has adapted to the online environment quite well. The design is simple and elegant. Solid colors make the site easy to compress, and thus easy to access. The site is easy to navigate, with a simple structure and big icons at the bottom of every screen to mark the way. Interestingly, Violet uses the antispatial quality of the environment to inspire curiosity in the shopper and to invite her/him to explore the site and the merchandise more deeply. In addition, the site includes contact information on the front screen, a mission statement, and biographies and photographs of the store's proprietors. In short, Violet has succeeded in creating an inviting, interesting online space. It has also succeeded in creating a warm, authentic personal presence in that space.

However, Violet is not perfect. The store's order form is kludgey at best, and far more difficult than an interaction with a cashier (although you don't have to wait in line!). In addition, the merchandise is represented by drawings, and product information is sketchy. It is impossible to get a true sense of the merchandise, and to make matters worse the store has a terrible return policy-store credit only within two weeks. Customers might be willing to take a chance on an expensive item (e.g. a set of five bowls for $84) if they could return it, but with this return policy you'd have to be crazy to order.

Amazon

Amazon is a study in contrasts to Violet. Not only is it a mass retailer, it is also hideously ugly. Amazon offers over one million books online, and is a low-budget operation going for volume. In addition, Amazon is targeting all three types of shoppers. It offers powerful, easy database search tools that help find a specific title, or just allow you to browse a specific topic. The site also makes recommendations to people who are just looking around.

Amazon, too, has done much right. It has taken advantage of distance-independence to offer extensive selection and convenience, with 24 hour shopping and shipping anywhere. It has used its database to replicate the services normally provided by the information desk. It offers contact information and live chat with authors to create a personal online presence. It has also simplified the shopping experience by using a concept of a shopping basket-you just put stuff you want in the basket, and Amazon does the order form for you!

Unfortunately, the site also has some major weaknesses. It has no atmosphere to speak of-just plain text-and this creates an unattractive, impersonal environment that is worse than K-Mart before the remodeling program. The store is positively uninviting, complex, and difficult to navigate, with no clear structure. Finally, product information is minimal. Can you imagine buying a book without being able to flip through it first, or at least read some reviews on the back cover! Amazon has an opportunity to make the merchandise come alive for its customers by archiving pictures of the books, excerpts, reviews, and information about the author. This information would overcome the obstacle of not being able to interact with the merchandise.

Firefly

Firefly is similar to Amazon, but extremely innovative and expertly done. It is a mass retailer of music and movies, again targeting all three types of shoppers. The unique feature of Firefly is that you must become a member to use the service, and that it uses an automated collaborative filtering database to gather information on the likes and dislikes of members, which it uses to recommend specific products to specific people.

Firefly makes excellent use of distance-independence in that it makes itself available to people from all over. In addition, Firefly encourages member involvement and the formation of on-line communities, thereby creating a friendly online presence. Firefly matches members with similar interests, provides online chat, message boards, and e-mail, and offers members personal homepages and member-sponsored chat topics. In this way, Firefly gives people a chance to represent themselves online by more than just an e-mail address or a handle. Firefly also uses its state of the art database to provide outstanding customer service. Not only does the database bring up specific titles, it also recommends items tailored to you, and even shops for you when you are not online. If the Amazon database is a clerk at Target, the Firefly database is a clerk at Nordstrom, a veritable online servant. In addition, Firefly offers extensive product information, sound and video clips, and extensive libraries of reviews.

Try as I might, I could not find anything seriously wrong with this site. It has identified and overcome all major obstacles to retailing successfully online. The only potential disadvantage of the Firefly model is that many people do not want to be so involved in their shopping experience. Some people will think that becoming a member is to cumbersome, or too invasive of their privacy. And do you really want to spend your life hanging out with people in an online record store? In a way, Firefly expects too much from its customers. It should continue to offer its present services, but it also should allow easier access to people who are not so committed to the store.

Conclusion

In this paper, we have examined the challenges and opportunities of retailing online. The online environment is a new and distinct space that requires retailers to adapt age-old methods of selling goods to a quirky, but potentially powerful new medium. After surveying three online stores, we can conclude that the online environment offers powerful options to retailers-distance-independence, worldwide distribution, intriguing design possibilities, powerful database resources, live chat with authors, and community-based selling. On the other hand, when not done well, online stores can be awkward, uninviting, risky, and hard to use. Clearly, some retailers have done a better job of adapting than others. As rumors of their success spreads, people will become more familiar with online selling strategies that work, and online stores may yet become a ubiquitous part of modern life.