Click that makes the Wallet tick!

Have you ever wondered how convenient it is to shop online these days? There is no traffic, parking issues and aimless walking around malls. Instead in the convenience of your home you can shop at the click of a mouse.

“But aren’t things cheaper on the Internet? Then how reliable is the quality of the stuff one buys online?” This is often the question that deters most people from buying goods online.

It is true that the Internet does offer products for cheaper rates than most other physical stores. But that does not mean quality of the goods sold is necessarily suspect. I have bought, among other things, a mobile phone, an iPod and a watch-- all well known brands at least 30 per cent lower than the market price. And they are all working fine.

What made me buy them online? It started when I realised my mobile phone retailer would not show me the handset unless I bought it. “We are not allowed to open the seal until the handset is bought,” was the reply I got tired of hearing at most places. If I had to see the phone inside the packing, was I not well off buying the same model cheaper? That is when I logged on to an online shopping site. Not only did I see a bigger picture of the handset, I also saw 3-4 pictures of it from many angles- front, back, side, screen shot. What was more I also had a choice of colours to choose for the handset.

How is it that the online medium can offer so much variety at such low prices?

Concept of Dis-intermediation

E-commerce or using the Internet and other electronic media to make financial transactions was based on the concept of dis-intermediation. This refers to a business model where middlemen – distributors, wholesalers and retailers—have been removed from the value chain, their role being fulfilled by the Internet.

This means things are cheaper due to the fact that the amount of money spent on maintaining a physical establishment like a retail outlet is not there.

A retail outlet, as you are aware, has fixed and variable costs. Aspects like rent or mortgage of the rental space would contribute to fixed costs while establishment costs such as electricity, telephone bills and salaries of sales staff would account for variable costs.

The cost savings hence incurred are passed on the customer in the form of discounts on all products—branded or otherwise.

The other interesting aspect of an online transaction is that the payment for the purchase is usually made while placing the order—not on delivery. The product is delivered later. This gives enough time for the company to source and deliver the item at the customer’s doorstep without prior investment in a large warehouse or maintaining inventory.

Does this mean it is easy to run an online store?

The real costs for an online site

When it comes to online purchases, the customer is looking for recognizable names when he logs on to the Internet. In marketing parlance this is referred to as top of the mind recall. This is called the common marketing problem which we call as top of the mind recall. It is this aspect of the business – publicising the site—that requires most money.

Most of us know of amazon.com now. But what we do not know was that the venture was in loss for a long time, funded periodically by the promoters and venture capital money. The site site’s biggest cost— advertising.

So where do these E-retailers advertise surprisingly they mostly use traditional media like print, television as well as radio. How often have we seen the commercials of sites like zapak.com and recently ibobo.com on prime time television. The key is that to have your brand like say Amazon.com on the highest recall rates when the consumer thinks of making a purchase on line.

And its not that only the online retailers have been on the net. Of late the traditional brick and mortar companies have been taking to the net in a big way. Take Staples Inc, the largest office merchandise retailer in the United States for example. They have embraced the on-line retail format and in 2007 almost one-third of their revenues came form E-tailing. That’s almost $ 5.7 billion in revenue which is at a lower cost as the traditional costs associated with retailing like ware housing and occupying retail space are not there.

The power of E-tailing became evident the day when Barnes and Nobles the brick and mortar book store went on line to merchandise its books.

This phenomenon has taken a new turn when Unilever in India decided to go online and with the help of Web 2.0 created a socially interactive site for its hair care product ‘sunsilk’. This was a classic case of co-branding, a social interactive site with an old economy product like shampoo. The result was a site called ‘sunsilk gang of girls’ which offered Career advice apart from the usual beauty and hair tips. As a matter of fact the brand ambassador for sunsilk actress Priyanka Chopra writes an infomercial in a leading daily about her inspirations in life. A case of online venture advertising in traditional media.

So what can you buy on the net?

Not everything can be retailed through the internet. Any product that is standardised can be merchandised on the net. Branded electronics items like IPods from Apple, Sony Ericsson mobile phones, digital cameras from Canon can be bought on the net. As these products come with an international warranty and assured quality the consumer can buy them without being worried. Same for Books, music cd and DVDs can be bought on the net.

What can’t be bought on the net? Definitely clothes where the touch feel and colour becomes important.

And as I get back to my computer to click for a new digital camera, I can already hear my wallet tick. All this from the comfort of my house (You can also be sitting in your office!).

(Dr Vikram Venkateswaran)