E-Commerce - online Merchant Strategies

Chapter 9 Case Study

IS 194 Thursday

E-Commerce – Online Merchant Strategies

Within the expanding world of e-commerce there are different business models companies are adopting. It is important to have a better understanding of these models in order to take advantage of the new opportunities for business. The models include manufacturer direct, catalog, omni-channel, and virtual merchants.

Cisco is a global leader in the communications equipment market. They offer cutting edge products and services directly to consumers, which places them in the manufacturer-direct e-commerce business model.  Cisco is invaluable to businesses and individuals in the following categories: Switching, Next-Generating Network Routing, Collaboration, Service Provider Video, Data Center, Wireless, and Security. This is an extensive list, but Cisco has expertly leveraged their expertise to provide these services on a large scale. Switching is one of the most notable functions as it makes up 30% of Cisco’s overall revenue. Switching helps connects computers, printers, and servers within a building or even a campus. Cisco will offer this service to a large company and provide technical support. They largely sell these products through a direct sales force without the intervention of a retailer. Cisco’s cost of sales are mainly made up of manufacturing, materials, warranties, and shipping. Manufacturing-direct merchants must efficiently navigate these costs, but this allows a company like Cisco to keep a larger portion of profits. However, Cisco does face the risk of increasing costs that reduce their bottom line. They may be forced to increase the price of services and lose customers to cheaper providers.

The Internet has magnified Cisco’s exposure and allowed them to focus on innovative technologies that can link businesses and individuals in new ways. Businesses are adapting their operating strategy around these services because Cisco continues to add value. Customers trust the products and do not have to worry about retailers’ special interest. Manufacturer-direct businesses like Cisco have leveraged the Internet to cut costs to focus on products in high demand that change the way we communicate and do business.

Oriental trading company is the nation’s most popular merchant for party supplies, arts and crafts, and toys and novelty items all at a value-based price. The company started in 1932 as one of the first wholesalers of gifts and novelty items, and is continuously rated in the top 20 Internet retailers based on customer satisfaction. Oriental Trading Company started using catalogs in the 1970s, and has since been bought by Berkshire Hathaway in 2012. Oriental Trading Company can be described as a catalog merchant because they established themselves as an offline catalog merchant, but since have moved to a successful online merchandiser, especially after the Berkshire Hathaway purchase where they combined their products with the products of other BH companies to sell on the already successful Oriental Trading Company site. Today Oriental Trading Company still uses their offline catalog to service America and to showcase a glimpse of their 40,000 different products, but mainly uses their online catalog. Oriental Trading Company has been successful in their move to online and has reduced their costs for printing in the process, but with their offline catalog still in use the risk for high printing costs is still prevalent. In addition to Berkshire Hathaway’s help in adding to their product line, Oriental Trading Company has become popular through their commitment to excellent customer service and community service. Oriental Trading company focuses on it’s commitment to helping the environment and even accepts donations of it’s own products, cash, or a combination of the two, for organizations with an emphasis on improving the lives of children and human services.

“Omni-channel merchants, or bricks-and-clicks companies have a network of physical stores as their primary retail channel, but also have online offerings.” (Laudon 597) A great example of an omni-channel merchant is Best Buy. Best Buy is “a leading provider of technology products, services, and solutions.” (Best Buy Corporate) Best Buy follows a sales revenue model by selling various consumer electronic goods such as TVs, tablets, and home appliances. Best Buy, however, is in its own competitive environment with other big retail chains that offer these products such as hh Gregg and Sears. It is also in a competitive environment in terms of selling electronic products such as tablets, phones, and video games with Amazon. Amazon now sells these products as well, and they usually sell them at a cheaper price. Although Best Buy does a good job reaching out to potential customers in terms of technology, one technology risk is adaptive viewing. For example, I may search for a new Xbox One on my MacBook, but my sister might search for Xbox One video games on her phone. The ability to adapt to those screens is a risk that Best Buy has.  Best Buy has had few legal problems in the past, but there was an issue that came about three years ago when the retail chain promoted a simple Internet coupon that read “Get $50 off of your purchase of $100 or more if you pay with a Mastercard.” (Huffington Post 1) After hundreds of consumers bought a plethora of items, Best Buy rescinded the offer, claiming that the “promotional offer was sent out with incorrect product inclusions, product exclusions, single product call out and end date.” (Huff. Post 5) A social consideration associated with Best Buy is a customer potentially having a negative experience at their local store and going and writing a bad review. In terms of growth potential, Best Buy has room to grow by expanding their brick stores to offer their goods and services to more potential customers.