Article: Who Me?

Rarely has the retail sector been faced with a strategic challenge of such significant complexity and uncertainty as the Internet, in particular eCommerce which has grown in terms of significance so rapidly.

The apparently unreal world of Internet stock valuations in the latter part of 1999 led to substantial and unrealistic expectations about the growth of B2C (business-to- consumer) on the Internet, causing many venture capitalists and Internet incubator companies in North America and Europe to become hostile towards B2C eCommerce and to some extent B2B (business-to-business).

The flawed B2C eCommerce models that the valuations were based upon have been now conveniently forgotten, yet the negative perception and get rich quick mentality lingers on. As such, forward looking retailers are quietly gaining ground with sound ecommerce operations replacing or complementing their bricks and mortar presence while many of their competition languish away either by ignoring the Internet completely or continuing with ineffective outdated websites and ecommerce solutions.

It would appear that even now the media and business in general whilst focusing on the negatives, has not considered three new vital areas of development in the consumer-facing market space or the extent to which the emergence of new electronic channels to market has led to distinctive and defensible means of business differentiation for new entrants and legacy retail businesses alike.

One area is the current thinking about the ways in which pricing and branding appear to work within an electronic channel. Another is the different ways in which B2B applications of Internet technology have opened up opportunities for existing retail businesses to further pursue productivity improvements within the supply chain and the extent to which such chains are capable of being re-engineered to accommodate the new challenges of electronic procurement and fulfillment.

The third important area is in understanding some of the organizational change issues that face retail and other intermediary businesses as they seek to accommodate an eBusiness perspective alongside their existing bricks and mortar operations. This is of particular importance as it will influence the nature of the marketplace within which retailers will seek to trade over the next decade.

As it exists even today, eCommerce potentially offers opportunities for all conventional retail businesses, because it uses wholly electronic means in allowing consumers to conduct commerce transactions. Yet, it is being suggested that the Internet’s emergence as a competitive channel to market in practice presents a threat to conventional retail businesses and paradoxically as an opportunity for new entrants into the marketplace.

Indeed it is touted, that by their very character the availability of electronic channels serves to lower the barriers to entry for such players, to the detriment of the existing retailers.

Well yes! It is a threat to established businesses and yes it is an opportunity for new entrants to the marketplace. It’s called competition. So, what are current retailers going to do about it? How defensible are these new product or market redefinition strategies? Can they only thrive in the vacuum created by conventional retailer inaction?

Perhaps more worryingly for established retailers, new entrants have also been seeking to create the possibilities of new kinds of relationships with customers, which are dependent upon technology, such as feature rich merchandising; newsletters; eCommerce enabled websites and email, for mediation. (Remember the fax?)

With its ability to easily inform, contact and build relationships, the Internet is a nearly perfect market. The result is fierce price competition, dwindling product differentiation, and vanishing brand loyalty with the most critical of comparison elements from the consumer's perspective, and certainly the most discussed, being that of price.

As an established retailer it is time to acknowledge the growth of interest in the use of the Internet if you do not wish to compete solely on price and study how you can make effective use of this new medium while your competitors continue to defend the indefensible. - John Shenton - August, 2002