Principles of Retailing: E Commerce and Digital Retailing Online Retail Business Models PurePlay ClicksandMortar Marketplaces Amazon Flipkart eBay D2C Subscription Box

What This Is

Online Retail Business Models refer to the various strategies retailers use to sell products online. This topic matters for retailers as it affects their ability to reach customers, manage inventory, and drive sales. For example, Amazon's pure-play model has disrupted traditional brick-and-mortar retailers by offering a vast selection of products with fast and reliable shipping.

Key Frameworks & Metrics

• Wheel of Retailing: Describes how retailers evolve from low-price to upscale over time. Practical use: Analyze your own retail business to identify areas for growth and improvement.
• GMROI (Gross Margin Return on Inventory Investment): Gross margin divided by average inventory cost – measures inventory profitability. Practical use: Calculate GMROI to determine which products to stock and how to optimize inventory levels.
• Inventory Turnover: Measures how quickly inventory is sold and replaced. Practical use: Monitor inventory turnover to identify slow-moving products and optimize inventory levels.
• Customer Lifetime Value (CLV): The total value a customer is expected to bring to a business over their lifetime. Practical use: Calculate CLV to determine which customers to target with marketing efforts.
• CAC (Customer Acquisition Cost): The cost of acquiring a new customer. Practical use: Calculate CAC to determine the effectiveness of marketing efforts.
• Basket Size: The average amount spent by a customer in a single transaction. Practical use: Monitor basket size to identify opportunities to increase average order value.
• Conversion Rate: The percentage of website visitors who make a purchase. Practical use: Monitor conversion rate to identify areas for improvement in the online shopping experience.
• Omnichannel Maturity Model: A framework for evaluating the level of integration between online and offline channels. Practical use: Assess your own omnichannel maturity to identify areas for improvement.
• D2C (Direct-to-Consumer) Model: A business model where products are sold directly to consumers through a company's own website or stores. Practical use: Consider adopting a D2C model to increase brand control and customer loyalty.
• Subscription Box Model: A business model where customers pay a recurring fee to receive a box of products. Practical use: Consider adopting a subscription box model to increase customer loyalty and retention.

Step-by-Step Process

1. Analyze your target market: Understand your customers' shopping habits, preferences, and pain points to determine the best online retail business model for your business.
2. Choose a business model: Select a business model that aligns with your target market and business goals, such as a pure-play, clicks-and-mortar, or marketplace model.
3. Develop a marketing strategy: Create a marketing plan that targets your desired customer segment and drives traffic to your online store.
4. Optimize your online store: Ensure your online store is user-friendly, mobile-optimized, and provides a seamless shopping experience across devices.
5. Monitor and analyze performance: Track key metrics such as conversion rate, basket size, and customer lifetime value to identify areas for improvement.
6. Continuously improve: Use data and customer feedback to make data-driven decisions and improve your online retail business model over time.

Common Mistakes

• Mistake: Ignoring inventory turnover and allowing slow-moving products to accumulate.
• Correction: Monitor inventory turnover regularly and optimize inventory levels to prevent waste and improve profitability.
• Mistake: Treating all channels separately and failing to integrate online and offline channels.
• Correction: Implement an omnichannel strategy to provide a seamless shopping experience across channels.
• Mistake: Over-reliance on discounts and promotions to drive sales.
• Correction: Focus on providing value to customers through product quality, customer service, and a seamless shopping experience.

Retail Strategy Tips

• When expanding omnichannel, ensure unified inventory visibility to prevent stock-outs online.
• Use data and customer feedback to make data-driven decisions and improve your online retail business model over time.
• Consider adopting a D2C model to increase brand control and customer loyalty.

Quick Practice Scenario

A department store has high footfall but low conversion. Which metric would you analyze first and why?

Answer: Conversion rate. This is because a high conversion rate indicates that customers are making purchases, which is essential for driving sales and revenue.

Last-Minute Cram Sheet

• Omnichannel is not just being present on all channels – it's about a seamless integrated experience across channels. ⚠️
• D2C stands for Direct-to-Consumer.
• Subscription box models are popular among consumers who value convenience and surprise.
• Inventory turnover measures how quickly inventory is sold and replaced.
• Customer lifetime value is the total value a customer is expected to bring to a business over their lifetime.
• CAC stands for Customer Acquisition Cost.
• Basket size is the average amount spent by a customer in a single transaction.
• Conversion rate is the percentage of website visitors who make a purchase.
• Pure-play models sell products exclusively online.
• Clicks-and-mortar models sell products both online and offline.
• Marketplace models allow third-party sellers to sell products through a platform.