Internet transactions and business models

INTRODUCCIÓN

Las transacciones electrónicas han existido en el mundo de los negocios desde el uso del teléfono y los primeros computadores. Sin embargo, Internet ha popularizado las transacciones electró- nicas en el campo de los negocios creando nuevos estereotipos en la economía global. En este documento se tratan tres modelos de negocio crea- dos por las transacciones en Internet: “Brick and Mortar, Brick and Click and Pure Play model”. Estos tres modelos no pueden ser analizados por aparte, pues el mercado ha mostrado que las transacciones todavía requieren de presencia física, mientras ello facilita una transición del consumidor a una nueva economía en línea. En otras palabras, sentido comunitario, experiencia social en la tienda y factores de inmediatez todavía son relevantes para los consumidores. En el texto se describen algunos obstáculos que estos modelos han atravesado y los retos para las compañías que han

114 Germán Contreras*

adoptado en comercio en línea, tales como sepa- online; however, they do not perform transaction ración e integración de los canales tradicionales on Internet. There are two different types of y los canales en línea. Finalmente, de la literatu- B&M, street-sides small businesses that their ra revisada se sugieren algunas estrategias para target area does not require spending funds in desarrollar en el corto y largo plazo. developing a web page and some large businesses that do not want to create conflicts with their tra- INTRODUCTION ditional channels of distribution, to mention one example Hewllet Packard (www.hp.com.au). Electronic transaction has been in the business As e-commerce is an indispensable mar- scenario since the use of telephone and the first keting tool, Brick and Mortars retailers are as- computers. However, internet has popularized ked urgently to “reinvent themselves” to achieve these electronic transactions in the business the advantages of the new technology (Harvard field creating new stereotypes in the global Business Review, 2001). Birkhofer et al (2000) economy. alleged that adopting either Brick and Click This paper deal with three business mo- model or Pure Play model depend on the nature dels shaped by internet transactions: Brick and of the existing model and its consumers. He went Mortar, Brick and Click and Pure Play model. on suggesting some strategies to be considered These three models can not be analyzed apart such as suitable project managers and the deve- any more, as the market has dictated that online lopment of effective implementation process of transactions still require offline presence, since multi-channel. Crittenden (2002) affirmed that it facilitates consumer transition to a new e-eco- to increase the level of success in the e-market, nomy. In other word, sense of community, social Brick and Mortar retailers might need as well experience in-store and immediacy factors are a careful diagnosis and strategic planning. Ma- still relevant to consumers. ruca (1999) suggested some principles to avoid Here, it is described some of the drawbac- costly failures such as make e-commerce easy ks that these models have passed through and to use, create tangible benefits, test and refine the challenges faced by the companies that have new implementations, design compatible tech- embraced e-commerce, such as separation and nology with consumer equipment, coordinate integration of the traditional channels and the alliance’s technology, use the technology to build online channels. Finally, from literature review, costumer relationship. Richard G, chairman of it is suggested some strategies to develop in the Marks and Spencer, suggested not getting in to short and long term. e-commerce unless there is certainty and clarity of what differential advantages have been added BRICK AND MORTAR to the costumer.

Traditional businesses that deal with their custo- * Administrador de empresas, maestría en mercadeo de Monash University. Ac- mers on face to face basis are called Brick and tualmente se desempeña como docente e investigador del Centro de Mercadeo, adscrito a la Facultad de Administración de Empresas de la Universidad Externado Mortar operators. They might have web page de Colombia. investigación 115 Even though, successful companies have stores on sales promotion as all the merchandise integrated their traditional channels of com- offered convey the costumer to a special service munication with electronic marketing tools, a experience. number of companies have found this integration Hewllet Packard is a technology provi- not easily to overcome (Willcocks et al, 2001). der that offers solution for business and home As this integration has triggered conflicts in the purposes; however, it does not commerce online, existing channel of distribution, to illustrate perhaps they think that selling products online sellers and distributors argue that it is difficult competes with their channels of distribution for them to compete with direct web-site pro- such as Harris Technology, (www.ht.com.au). motions from the producers (Bevan & Murphy, Other Brick and Mortar companies are just 2001). Davison et al (2001) also remarked creating alliances with other models to enhance that there is some law issues to be considered their channels of distribution, such as Borders on getting on line such as copyright for domain Australia that has teamed with Amozon.com. As names, developing and hosting websites, online Bellman (2001) highlighted, Bricks and Mortar contracting, digital signatures, security, privacy retailers are sharing revenues with pure-plays, rights, insurance, intellectual property and ad- since the marketing budget to build a brand vertising issues such as spamming and targeting image on the web is limited and risky. children (Austin et al, 1999). To conclude, it is said that the ability to However, to some Brick and Mortar re- move from offline shopping to online commerce tailers, e-commerce is just another tool of the will distinguish successful companies; however, ongoing direct marketing effort, since catalogs Otto (2000) argued that conversely cyber chan- and other DM techniques have been a successful nels might move back to the physical retailing to on going non-store shopping (Wood & Stacy, overcome the weakness of e-commerce. 2001). Wood went on highlighting that catalog will account for the 6.3% of total retail sales BRICK AND CLICKS by 2004. As Maruca et al (1999) putted it, yet the critical factors of success in retailing Bricks and Clicks retailers are traditional Bricks are assortment, price, convenience, service and and Mortar organizations that have boosted ambience therefore internet is just and expanded their traditional channels of distribution. They tool of the existing marketing channels such as have integrated sales offline and online. These telemarketing and catalog. Raymond Burke adds models have found a successful balance between that “Internet hasn’t changed the priorities”, it Brick and Mortar and Pure Players, since boo- just has enhanced the existing marketing tech- th models have interlaced the advantages of a niques, (Maruca R et al, 1999). physical presence and electronic transaction There are other physical reasons why model. Brick and Mortar formats will be part of the Brick and Click model integrate the be- retiling industry longer. Otto et al (2000) po- nefits of physical retailing with click retailing inted out some reason why Brick and Mortars marketing. This synergy opens some differential are still relevant, as follow: less risk involve, advantages in product marketing and marketing possibility to touch and inspect specific products, promotion. As the web-sites are 24/7 adverti- more monetary payments possibilities, interac- sing channels also are able to establish strong tion and sense of immediacy. Crittenden et al relationship marketing. Steinfield (2002) at el (2002) affirmed that even with the advantages mentioned other types of synergies: cost savings, of the new technology in-store direct sellers improved differentiation, enhanced trust, and continue being indispensable in the selling pro- market extensions (Mieczkowska, 2002). Sin- cess. Characteristically, Bellman (2001) added ce “the dead of distance” companies also can that Brick and Mortar consumers prefer visiting reduce their physical presence therefore reduce

116 the fixed costs, in addition, e-commerce can as recent survey has shown: Australia businesses minimize human errors and build bigger market are taken up rapidly Internet, in 1997-98, 6% size that reach to scale economies (Sharma A, of business had a web-site or home page; by 2002, Gulany R , 2000). 1999-2000, this proportion had risen to 16%, However, Bricks and Clicks model is fa- (www.abs.gov.au/ausstas, 2004). cing some drawbacks due to the weaknesses of Internet. Steinfield et al, 2002 mentioned that PURE PLAY COMPANIES lack of sense of trial and channels conflicts as the main issues. As to consumer trial, it has been Breaking down geographical barriers in the easily overcome by Brink and Click retailers as retailing industry throughout e-commerce is they do physical presence in the market, which an essential differential advantage and other benefits not just their costumer but also their way of globalization. In Australian retailing suppliers. Sharma A (2002) affirmed that with industry, major competitors are looking out- multi-channel strategy customers still have wards, therefore they are searching for more locations at which physical immediacy can oc- strategic alliances and technological innovations cur, especially consumer trial of products when rather than Bricks and Mortar investments product quality can be difficult to communicate (IBISWorld ,2003). Some typical Pure Players on-line. Sharma added, however, that this issue are search engines, internet services providers, can be also approached using creativity at commerce sites and transactions sites, (Kotler transmitting quality online. ph, 2003). With regard to channels conflicts, Ste- E-commerce has raised new perceptions infield C et al 2002 pointed out that as the for both retailers and shoppers, as they have convergence of both traditional channels and now virtual channels to reach their prospects e-commerce channels, Click and Mortar enter- and consumers. Consequently, it is argued that prises have been passing through operational e-commerce would be able to replace traditio- conflicts that jeopardize the efficiency of both nal channels of distributions such as physical channels in term of costumer service. However, stores, therefore Internet will lead the markets Gulati (2000) stated that a strategically inte- to face the “dead of the distance” (Steinfield gration can regulate and integrate both channels C, 2002). Some forecasted that internet would to embrace a successfully startup in the e-world. bring changes in community perceptions toward Gulati R (2000) went on affirming that this living areas as e-commerce obligate society integration should also occur in three other di- to rethink present urban cities, since internet mensions: brand recognition, management and promote a geographic spread due to the easy equity. Since integration should fulfill the lack access to customer and business and its inte- of both channel, this require management skills raction (Organization for economic co-operation that can determine the intensity of integration or and development, 1999). IBISWorld Pty Ltd, separations of both channels. As a result, on in- (2003) remarked, the use of e- commerce me- tegrating those managerial elements companies thods would introduce in the retailing industry can develop synergies that Brick and Mortar and challenging innovation such as alteration of the Pure Plays might not have by their own. size or layout of stores. To illustrate, among the major competi- Some advantages of Pure Play model are tors in the retailing industry in Australia, Coles less cost structure, as on line retailers require less supermarkets has adjusted their channel of building infrastructure; the inventory can be large distribution to e-commerce, (www.coles.com. as Pure Plays do not require physical stores to au). From this web-page, it is possible to buy exhibit products and have strategic alliance with groceries and to receive them at your house’s suppliers; they reach extensive market, since its door. This service responses to the market trends, online marketing is 24/7 and global and have no investigación 117 boundaries; the relationship is individualize as traditional channels of distributions and online customers have no middleman to communicate channels, from its webpage (www.dell.com.au) with the company and the anonymity is ensure, it is possible to buy directly from Dell. However, (Otto et al, 2000 ). Furthermore, pure plays Dell on line model strength is its customization companies have been able to create strong brand (Chan P, 2003), given that through online sales recognition and efficient relationship marketing is possible to determine particular specifications such as Dell computers (Ray, A 2003). on desktops and laptops. Even though, these paramount differential However, because of the stunning advan- advantages pure play companies have suffered a tages of online transactions and services suggest remarkable turndown, remembered as the “dot- that the retailing market would be dominated com crash”. Vishwanath et al (2001) described just by pure-play retailers. However, this sta- it as follow, among 142 companies that were tement cannot be sustained as the crash of top-ranked websites between 1996 and 1998, dotcoms demonstrated clearly the contrary. As 80% were pure play, twelve months later 10% a result, Bricks and Clicks companies comes to bankrupt and eventually out of the survivors less be the ideal use of traditional marketing. than 5% were profitable. Geltner (1998) added that pure play companies were just helpful to SUGGESTED STRATEGIES create speculation. Steinfield concluded that even though the failure of dotcoms companies, pure Not all the brick and mortar retailers require to plays underlying basis that are still relevant. performance transactions online, however, most To overcome dotcoms drawbacks, Vishwa- of them require communicating with their clients nath, V (2001) argued that by integrating online using internet, especially those companies whose and offline differential advantages pure-plays potential customers are far-off, therefore distance companies would find profitable business models. or location is an essential factor of consumer He ensured that creating multi-channels can decision making. Conversely, retailers or busi- achieve measurable results and therefore suggest nesses whose consumer behavior has a strong some strategies such as: to use the web creatively, social interaction sense or the attitudes towards to convert browsers into purchaser, to define clear internet is not pertinent to consider to go into roles of the multi-channels. Yonca Brunini, Yahoo online transaction but online advertising. marketing director, declared that as to a pure plays As to the medium and large enterprises, remain relevant in a virtual world, every new servi- Brick and Click strategy is an essential model ce has to add value, must be developed and efficient to be adopted. This model brings on differential performance and the web site must become an advantages to compete against Pure Play com- habit to the customers (Ray A , 2003). panies. However, this model must be developed There are several Pure Plays companies from the customer needs rather than the com- in Australia that have launched online transac- panies’ benefits. tions. Citysearch.com.au is an Australia web As for pure players, integrations or sepa- site search engine that combines tourist infor- ration is the dilemma that should be faced. This mation and a business directory. Out of its core might be answered according to the target market. business, Citysearch provides internet solutions Therefore measuring and knowing the consumer’s such as web design, hosting and domain regis- needs is the successful way to be taken. tration. This company is an example of a pure As wireless technology is shaping new play company, since it was founded in 1997 by scenarios in electronic commerce, Steinfield Telstra as part of e-commerce new business (2002) suggested exploring how this technology opportunities, its transaction is purely online as influences the evolution of pure play retailers in well as its services. Another remarkable example the realms of consumer behavior would deter- is Dell Computers, this company has combine mine new venture enterprises.

118 In the short term, it might be the case that the People”, vol. 79 Issue 1, p. 20. a company which is not on Internet simply does IBISWorld Pty Ltd., (2003) “Retail Trade not exist, at least from consumer perspective. Industry”, p. 37. Therefore, from small to large companies must Kotler P. (2003), “Marketing Management”, consider how to get differential advantages out 11e, prenhall, p. 45. Maruca, R., Burke, R., Greenbury, R., Quel- of internet either from an in-house implementa- ch, J., Smith, R., & Nilsson, R., (1999), “Retailing: tion or from an strategic alliance. Confronting the Challenges that Face Bricks-and- In the long term it might not be necessary Mortar Stores”, Harvard Business Review, vol. 77 no differentiate the three studied models as the Issue 4, p. 159. market would be dominated just by a hybrid Mieczkowska, S., Barnes, D., Hinton, M., model that satisfied consumer needs. Therefore, (2002) “Finding the Fit: Applications of B2B e-Busi- integration or separation would not be discussed ness in Three UK Insurance Companies” , Electronic any longer but how to create customer experien- Markets , vol. 12 Issue 3, p. 184, 8 p. ce on the web to generate online traffic reduce Organization for Economic Co-operation time and cost shipping. and development (1999) “the economic and social impact of electronic commerce, preliminary finding and research agenda” Organization for economic Co- List of References operation and development, (Ottawa, Canada). Otto, J., Chung Q., (2000), “A Framework for Asutin, M., & Lynn R., (1999), “Targeting chil- Cyber-Enhanced Retailing: Integrating E-Commerce dren online: internet advertising ethics issues”, Journal Retailing with Brick-and-Mortar Retailing” , Elec- of consumer marketing , vol. 16, n.º 6, pp. 590 a 602. tronic Markets, vol. 10 Issue 3, p. 185. Bellman, L., (2001), “Bricks and Mortar: Ramachandran, K., (2003), “How dotcoms can 21st Century Survival”, Business Horizons, Vol. 44 be winners: a customer dissatisfaction approach to Issue 3, p. 21. analysis”, Venture Capital, vol. 5 Issue 3, p. 191. Bevan J. & Murphy R. (2001), “The nature Ray, A., (2003), “Widening portals and pi- of value created by UK online grocery retailers.” pes”, Brand Strategy, Issue 177, p16. International Journal of consumer studies, vol. 25 Sharma, A., Krishnan, R., (2002),”Clicks Issue 4, p. 279. Only, Clicks and Bricks, and Bricks Only: Are Retail Birkhofer, B., Schögel, M., & Tomczak, T., Salespeople an Important Factor in Choice?”, Jo- (2000) “Transaction- and Trust-Based Strategies in urnal of Marketing Management, vol. 18 Issue 3/4, E-commerce - a Conceptual Approach”, Electronic p. 317, 20p. Markets, ; vol. 10, Issue 3, p. 169. Steinfield, C., Bouwman, H., & Adelaar, T., Chan, P. & Pollard, D. (2003), “Succeeding (2002), “The Dynamics of Click-and-Mortar Elec- in the Dotcom Economy: Challenges for Brick & tronic Commerce: Opportunities and Management Mortar Companies”, International Journal of Ma- Strategies”, International Journal of Electronic nagement. vol. 20 Issue 1, p. 11. Commerce, vol. 7 Issue 1, p. 93, 27p. Crittenden, V & Wilson E, (2002), “Success Vishwanath, V. & Mulvin, G., (2001), “multi- factors in non-store retailing: exploring the Great channels: the real winners in the b2c internet wars”, Merchants Framework” Journal of Strategic Mar- Business Strategy Review, vol. 12, Issue 1. keting, Vol. 10 Issue 4, p. 255. Willcocks, L. & Plant, R. (2001). “Getting Davidson, S., Kapsner, M., (2001), “Bricks and From Bricks to Clicks”, m i t Sloan Management Mortar to the Internet--Practical Legal Consideratio- Review, vol. 42 Issue 3, p50. ns” , Journal of Internet Law; vol. 4, Issue 9, p. 1. Wood, S., (2001), “Remote purchase envi- Geltner, David, Kluger & Brian, (1998) “Reit- ronments: the influence of return policy leniency on based pure-play portfolios: the case of property two-stage decision processes”, Journal of Marketing types”, Real Estate Economics, vol. 26, Issue 4. Research, May2001, vol. 38, Issue 2. Gulany R., Garino J. (2000), “Get the Right Mix of Bricks & Clicks” , Harvard Business Review, vol. 78 Issue 3, p. 107. Harvard Business Review, (2001), “Power to investigación 119