192-What’s Missing in Internet Retailing

Every year I buy several things online. I don’t like to shop in stores because I usually need to buy only one thing. I hate to take the time to go to a store to buy just one item.

Online shopping, for me, beats bricks and mortar shopping on almost every dimension of the Customer Buying Hierarchy. (See “Video #17: Value and the Customer Buying Hierarchy” on StrategyStreet.com.) It has the advantage of Function. I can buy almost anything I want online. It has some advantages, though not all, over bricks and mortar in Reliability. When I shop online, I usually can find several web sites that will give me product reviews on exactly what I am trying to buy. Online shopping is more Convenient. I can sit at my desk to purchase, rather than going to a store and jostling with other equally impatient consumers. Online shopping is also more Convenient for me because I can easily check prices at a number of online outlets without having to visit them physically. So, online shopping also offers a Price advantage. I can usually get a lowest price guarantee when I shop online. That doesn’t necessarily mean that I will buy from the online site offering the lowest price, but I could if I wanted to do so.

I am sure I am not the only consumer who finds online shopping so advantageous. Web sales account for about 6.5% of total retail sales. That is a relatively small share, though it is growing. In 2009, total online sales increased by about 2%, while retail sales in bricks and mortar stores declined. So, online sales are growing market share in the retail sales industry. Why, though, doesn’t it have a higher share of total retail sales? Industry statistics lead me to think that the problem lies in a form of Reliability. (See the Perspective, “Customer Segmentation: Finding the Human Dimension” on StrategyStreet.com.).

The way people purchase today suggests that Reliability still remains a problem for online retailers. The top 500 web sites offering retail products grew 9% last year, considerably faster than total online sales at a 2% growth rate. However, the top 100 retail online sites grew 12%. Consumers clearly preferred the bigger online retail companies last year. Even more impressive, those companies that offer only online sales in the top 500 internet sales sites grew at 20% last year. Consumers are showing a strong preference for those online retailers who live and die with their online performance.

The online-only retailers tell the story of Amazon and the several thousand dwarves. Amazon has a 52% market share of the web-only online sales. The sales statistics and Amazon’s market power suggest that a form of Reliability is holding back the growth of internet retail sales. Consumers would like to know that they will receive the product that they ordered, that the product will work, that, if the product does not work, the retailer will stand behind it and that the retailer will guard the consumer’s credit card information carefully. Amazon has hurdled these barriers well and has reaped the rewards in growth and market share. All the other retailers selling online, especially those outside of the top 100, need to concentrate on creating assurances for their consumers that they can do as well as Amazon in these forms of Reliability.

Posted 6/3/10

Update:

Online sales have continued to grow tremendously. As many more entrants joined the market, Amazon’s dominance has declined somewhat. However, consumers clearly show a preference for buying from well-known brands online.

By any measure, online sales have grown far faster than any other channel in retail. Retail sales measurement systems vary.  Some show total online sales of 14% of total retail sales. Others claim online accounts for 20% of the market.  The much faster growth rate of online sales is unlikely to abate anytime soon

As of June 2022, Amazon accounted for about 38% of the U.S. e-commerce market, making it by far the leading online retailer the country. Second place was occupied by the e-commerce site of retail chain Walmart, with a 6% market share, followed in third place by Apple, with 4%.

Most of the online sales outlets are what we would term Next Leader Reformer products. Some are Next Leader Transformer products because of their breadth of offering. See HERE for more perspective

9/22

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THE SOURCES FOR STRATEGYSTREET.COM: For over 30 years we observed the evolution of more than 100 industries, many hostile.  We put their facts into frameworks applicable to all industries and found patterns.  Strategystreet.com describes the inductive results of these thousands of observations and their patterns.