Economic in the Retail Internet World - Internet Marketing Australia

Since the advent of internet, the landscape of marketing changed tremendously; the market is now swarmed with many similar products, the varieties are exploding and thus the consumers can make their own evaluation through constant comparison in the virtual market. What makes shopping easy is that consumers now do not have to search information from shop to shop, instead he can compare the similar products in the same internet portal such ebay, Amazon, lelong and etc, thus the information asymmetry is reduced and the bargaining power increased. What makes the successful internet business therefore cannot depend on traditional product differentiation (as there is not much room and retailers would not have the luxuries to differentiate), price discrimination and also after sales service. These traditional practices are common, and therefore do not enhance a retailer's ability and image in the sea of retailers in the internet business.

The plethora of internet retailers selling similar products, or range of products is attributed to low entry cost. This come in the form of the marginal cost involved in setting up a website, cost of monitoring, the infrastructure, the processing of orders and etc are very low. The unlimited storage facilities provided by the service providers enables plethora of listing of products or services. Among the main reasons the internet attracts so much attention among retailers is the reach out of the website; compare to the brick and mortal type of retailers, the boundary and limitation is usually geography. With this obstacle overcome, consumers around the world can place order with the retailers thousand of miles away.

It is also because of the attractiveness of the internet retailing that brings challenges to the existing and new entrants. The main concern is the similarity of the products offered. Sometimes the products offered in other site maybe not 100% similar, they may pose high substitution effect on the products listed in other site. Long gone the notion that retailers could leverage on the information cost incurred by consumers while searching and comparing the products before purchase, the distance of different shops in different locations is just a simple click away.

Firms in this environment, therefore requires different marketing approach. Traditionally, price and quantity competition are main tools to survive and out compete in the business world. However, the strategies are now proven to be very inefficient to the retailers, and very limited in their success rate. Especially when consumers are now so pampered with choices, price competition will drive the profit margin to zero. Then the market intuition evolved, the existing strategies are coupled with the after sales service; providing warranty or guarantee, full replacement of manufactured defaults, on time delivery and etc. While these strategies are relevant and necessary all the time, the adoption rate is so wide among the online retailers, that a retailer could not differentiate from the sea of other retailers who also providing this similar services in the internet world. Thus, online retailers faced an uphill task in building their competitive edge. To overcome this, many employed similar approach adopted by hypermarket; the multi tier system, coupon system for repeat sales, and etc. Again, the limitation of the online retailers is the inability to differentiate.

The success of retailer in the virtual world is very much similar to the brick and mortar shop; the evaluation of consumers' needs. There is one critical component which influences the purchase; the buyer's value chain. The value chain is very much related to the performance of the consumers after the purchase and the cost involved.

The performance of the consumer involved question such as how the product could improve my performance. In intermediate goods market, this concerns something like delivery system, logistics, the overall performance to my overall production chain, the product's failure rate and etc. Similar to the online retailer's value chain, these type of buyers concentrate on how the purchase could help to improve the total value chain. Thus, knowing the value chain, the critical part of the value chain, and the performance of the value chain of our buyers are vital. For this, we could categorize the different requirements into different categories to suit the needs of buyers; such as how the emphasis of delivery could upgrade our buyers, how the provision of warehousing could increase our buyer' performance, the cost saved for our buyers and etc. Of course the decisions and concerns are varied among the buyers, our emphasis here is on mass market rather than single buyer.

Similarly, this concept applies to end user market. However, the characteristics could be different. The variables to look for are the usage of the products, the price, the delivery, is the product complementary of substitutes, the occupation and etc.

This considerations lead us automatically to segmenting the market according to the needs of buyers. Traditional segmentation involves effort to search for niche market, however, they are mostly needs based, demographic. Another method that we like to introduce is cluster analysis. It provides better illustration, and enables in dept analysis to find the segment. Particularly, when one is hoping to create hype or fad, as many online retailers are hoping to create large traffic to the website, the cluster analysis could help to find the wants, the purchase decision and also the transition point of the purchase. To illustrate further the last point, transition point is the critical point where consumers change from being a fence sitters to become buyer; how consumer changes their decision to buy. This critical point is crucial as it allows us to understand the organizing principle behind every purchase of the society. By recording the past behavior of the consumers, the cluster analysis could be very useful to predict or to approximate the future purchasing behavior.