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e-commerce: boom or bust

Research Question. E-Commerce has created a vast new medium for companies to market their product. The infrastructure issues and uncertainty that e-commerce brings, however, has many companies seriously debating whether or not the switch to E-commerce is worth it. Does E-commerce help a company become more profitable?.

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e-commerce: boom or bust

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    1. E-Commerce: Boom or Bust? Marketing Group 2 Lutao Ning Kevin Cassese Paul Jepsen Drew Ciepcielinski

    2. Research Question E-Commerce has created a vast new medium for companies to market their product. The infrastructure issues and uncertainty that e-commerce brings, however, has many companies seriously debating whether or not the switch to E-commerce is worth it. Does E-commerce help a company become more profitable?

    3. Approach To avoid any discrepancies across industries due to the dot.com crash, we chose four case studies within the same industry (books). 4 Ways to Approach E-Commerce Avoid e-commerce completely (The Regulator) Use it as a medium of advertisement (Borders) Embrace it whole-heartedly and invest heavily (Barnes and Noble) Avoid Brick and Mortar all together (Amazon.com)

    4. Case 1: Amazon.com Amazon.com opened its virtual doors in July 1995. Jeffrey P. Bezos - President, CEO, Board Chairman Has always been strictly an online company Started by selling only books via the Internet Now they sell CDs, videos, DVDs, toys, games, electronics, kitchenware, computers, along with the books. They offer E-Cards, conduct auctions, and have added a section for apparel and accessories. As the internet has become more popular, so has Amazon

    5. Customer and Financial Growth 1997: Customers: 1.5 million Sales: $148 million 1998: Customers: 6.2 million Sales: $610 million 1999: Customers: 16.9 million Sales: $1.64 billion 2000: Customers: 20 million Sales: $2.76 billion 2001: Customers: 25 million Sales: $3.12 billion

    6. Marketing Progress As the Internet has become more popular, Amazons marketing strategies have progressed exponentially. Marketing strategies are always customer centric Some of the strategies include: Welcome banner uses the customers full name Your gold box feature allows the customer to see a special item offered at a discounted price solely for that customer (based on purchase history) E-mails are sent to customers thanking them for their order, giving them a confirmation number, and providing shipping information They offer secure credit-card payment with compensation for insecure credit-card transactions. Amazon.com Associate allows people to earn money by selling Amazon products on their websites. Online Z-Shops allow independent vendors to gain access to Amazons customers and one-click shopping system for a $10 per month fee.

    7. Marketing odds and ends Personalized customer and employee recommendations Hassle free bid click auction bidding Wish List allows you to select items for your holiday list and send it to friends and family members Add any item to your wish list and win up to $350 of products Wedding registry (same as wish list, but for weddings) Free Super Saver Shipping on orders over $25 dollars 50% discount off bestsellers 30% discount off DVD new releases International affiliates offer thousands of additional items EYES program alerts customers when their favorite authors release new publications

    8. Competitive Landscape

    9. Case 2: B&M First, E-commerce Second Barnes and Noble Inc. started in 1873 in Chicago Grew steadily until 1971 when Leonard Riggio bought the NYC store for $1.2 million dollars Offered best seller books for 40% off retail price Merged with B. Dalton in 1986 and Scribners in 1989 and began streamlining their superstore design Went public in 1991

    10. BN.com In the wake of the internet boom, the #1 book retailer in the country felt threatened by up and coming internet bookstore Amazon.com Started Barnesandnoble.com in 1997. Partnerships with AOL and book publisher Bertlesmann coupled with high growth in tech stocks caused Barnesandnoble.coms value to sore. Went public in late 1999. Now no longer part of Barnes and Noble Inc.

    11. Financials Year Before IPO 26 weeks ended ---------------------------------- Fiscal Year August 2, August 1, 1997 1997 1998 ----------- ------------------ --------------- (unaudited) Statement of Operations Data: Net sales............................................ 100.0% 100.0% 100.0% Cost of sales........................................ 80.5 82.5 76.6 Gross margin......................................... 19.5 17.5 23.4 Operating expenses: Marketing and sales............................. 60.3 46.7 134.6 Product development............................. 34.3 38.9 19.8 General and administrative...................... 13.8 14.7 22.4 Depreciation and amortization................... 18.3 25.5 14.0 -------- ------- ------- Total operating expenses............................ 126.7 125.8 190.8 --------- ------- -------- Loss before taxes.................................... (107.2) (108.3) (167.4) Benefit for income taxes............................. (44.0) (44.4) (68.6) -------- ------- ------- Net loss............................................. (63.2)% (63.9)% (98.8)% ======== ======= ========

    12. Financials Since IPO

    13. Competitive Landscape

    14. Conclusion Competing directly with Amazon.com has greatly damaged BN.com profitability. Amazon had first mover advantage and has diversified its inventory while BN.com remains primarily on books. BN.com as a company has been generally unsuccessful despite financial backing from its name-sake, Barnes and Noble Inc. Barnes and Noble Inc. has lost millions in investments while BN.com continues to generate a loss.

    15. Case 3: Borders Group Inc. Overview: Company is leading global retailer of books, music movies and other information and entertainment items. Second largest operator of book and music superstores and the largest operator of mall based book-cost stores in the world (based on sales and # of stores) Operates over 385 Borders Books and Music Stores in the U.S. and 25 international Borders Books stores Approximately 800 Waldenbooks locations and 36 U.K. Books etc. stores Added online shopping at borders.com in 99 (through 01)

    16. Borders: Financial Summery

    17. Rise and Fall of Borders Online, Inc. 99: Leading global retailer decides to try their hand at the internet: Borders Online, Inc. Originally functioned as complete online store similar to amazon.com As online store Borders.com was losing money: 2001 2000 1999 Net losses at $18.4 $17.2 $10.5 Borders.com: (In millions)

    18. Why Was Borders Online losing $??? Cost of operations outweighed total sales Impairment charges Borders Annual Report 2000-2001: The net loss for 2000 increased primarily as a result of an $11.3 million after-tax asset impairment charge related to the computer hardware and software at borders.com. The increased loss in 99 and 00 was due to a full year of the sites operating expense, (which was) required to develop and operate the site and to fulfill costumer orders.

    19. The death of Borders Online, INC. 2000 Annual Report: Our online investment will be channeled to support out in-store platform. We have targeted loss reduction as a major goal in this area. The first step took place in the fourth quarter when we wrote off certain hardware and software assets of borders.com. We took this step with the realization that the direct-to consumer segment of our online business will not produce profits in the foreseeable future. Therefore, we plan to continue to mitigate losses throughout 2001 via partnerships that take advantage of excess capacity in our industry. Bordersstores.com Check inventory and find closest stores Borders.com teamed with amazon.com borders gets a small cut from amazon

    20. Competitive Landscape

    21. Case 4: The Regulator Book Store Founded in 1977 by Tom Campbell and John Valentine Privately held company (thus no public earnings statements) Primarily targets local residents/Duke employees Students buy textbooks once in a while, but not much profit off of students because they dont read for pleasure Sales increased by 40% since 1998

    22. Website: www.regulatorbookshop.com Belongs to the American Booksellers Association (Trade organization) Booksense.com uses the large database of the ABA to market books Gives the Regulator a presence but the Regulator has not spent any overhead for the website

    23. Competing with Online Retailers Difficult to compete with Amazon because Amazon can incur large debt and still function as a business Regulator competes well on prices Provides much better personal service and faster delivery

    24. Staying Away From E - Commerce Costs of hardware and compiling a database was cost prohibitive Majority of customers still shop via BM rather than online Moderate profits regardless of no E-commerce presence

    25. Conclusion E-commerce allows companies to reach a much broader customer group High overhead brings little increase in actual profit Companies that have invested heavily in E-commerce are in large debt and have suffered huge losses Companies who invest very little, or not at all in e-commerce will enjoy modest profits and net gains

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