Multi-Channel Retailing in B2C E-Commerce

Abstract

The Internet is not only a significant communication medium, it is also largely used as a channel of distribution. In the very beginning of the e-commerce era, most researchers and practitioners forecasted a sharp increase in Internet-based commercial applications, leading to a threat of existing business models. Already in 1980, Rosenberg and Hirschmann argued that in-home shopping could threaten store-based retailing, as consumers would tend to choose among a larger amount of competing retail formats. Early investigations by Moschis, Goldstucker, and Stanley (1985) revealed crucial conditions that can influence success of online marketing instruments. The conceptual work by Alba et al. (1997) provides basic implications of electronic shopping for consumers as well as for the supply chain and helps understanding key issues in Internet-based shopping. In contrast to the mainly positive discussions on the emerging e-commerce, George (1987) found significant obstacles to non-store retail formats and stated an uncertain future for Internet-based business. The actual development of online shopping supported George’s (1987) assumptions. In the late 1990s, the number of online shops as well as venture capital for them increased sharply. A few years later, many online shops broke down, mainly due to ignorance of business administration fundamentals. One of the most well-known examples is the U.S.-based online grocery retailer Webvan, which wanted to build a nationwide network of food distribution centers in order to replace supermarket shopping. Webvan’s collapse was mainly caused by its misalignment between marketing and operations strategies (Delaney-Klinger, Boyer, & Frohlich, 2003). The large number of similar bankruptcies led to skepticism on e-commerce in general and a broad refusal of any e-commerce-related business activities. But with increasing particularity of e-commerce research and practice, this business area is supposed to recover and show growth again, although to a smaller extent than during the “hype.” This development is depicted in Figure 1. One important business area of e-commerce is the business-to-consumer (B2C) sector—that is, using the Internet as a channel of distribution towards consumers. Firms that run B2C online shops are regarded as retailers. In the e-commerce world, one type of retailer proved to be most successful: retailers that use the Internet as an additional channel of distribution, supplementing their network of physical stores. These so-called multi-channel retailers account for a large portion of e-commerce sales. In the U.S., they achieved 72% of online sales in 2002. They also show a higher profitability compared to retailers that operate solely on the Internet (dot-coms). Eighty percent of retailers that operate online shops and stores were profitable in 2002. In contrast, only 50% of the dot-coms were profitable (Haeberle, 2003). This raises the question of which mechanisms enable a multi-channel retailer to achieve benefits that are not applicable to dot-coms. In order to understand the fundamentals of multi-channel retailing, a discussion on electronic retailing as a retail format and the main characteristics of multi-channel and dot-com retailing is provided. Starting from these considerations, this article presents benefits that arise from a multi-channel strategy and provides an overview for practitioners who want to assess their own as well as their competitors’ opportunities and risks in electronic retailing. The conceptual findings are illustrated by examples of successful multi-channel retailers in practice. Finally, a short outlook on future developments is provided.