1.2 Research Problem:
The objective of this thesis is to analyze the new strategic opportunities that digital is bringing to the current traditional retailers.
Berman defines retailing as “the business activities involved in selling goods and services to consumers for personal, family, or household use. It is the last stage in the distribution process”.
With the very fast growth of digital and the new ways of buying product online, the retail concept needs to be review due to the changes that these new technologies are bringing to consumers.
The objective of most of the companies it to reach a point where the company is sustainable. In order to do that, they need to innovate.
Since a few years, we assist to a mobile revolution which is completely reshaping the retail industry with a fast-growing number of people using everyday their phones to buy products.
This Thesis has for objective to explore the opportunities that these new technologies are bringing to the retailers, and how these retailers are going to adopt the new technologies in their business model in order to keep their business healthy.
1.3 Research questions
This thesis demonstrates a structure to identify the main disruptive technologies for current brick-and-mortar retailers. First of all, in order to do that, we will need to understand the aspects that affect the behavior of the modern consumer.
What are the reasons behind buying product and/or services, and what are the most important factors in the consumer’s journey. Here is the first research question :
1.Why is E-commerce the fastest growing retail channel ?
Digital transformation has impacted how people exchange value with each other. In this thesis, we will examine the opportunities created by these digital technologies and the new strategies that retailers needs to adopt in order to stay profitable. This ideas are reflected in the second research question :
2.How physical retail stores will be integrating new technologies, and which one ?
After that, we will go more into details and understand how one of the most promising technology can really have a huge impact on the retail industry in-store, as well as online. This appears in the third research question articulated below.
3.How Artificial intelligence is redefining the retail experience ?
2.E-Commerce, the main disruptive force in the retail industry.
2.1 History of E-commerce
Electronic Commerce (E-Commerce) can be defined as the fact of purchasing and selling goods or services on a platform through the internet.
There are six main e-commerce models in which we can classify businesses:
The first one is the B2C approach (Business to Consumer). This approach is characterized as the commercial activity between a company and an Individual. This model is one of the most famous model use in e-commerce. For example, when a shopper buys a TV from an online TV retailer.
The second one is the B2B approach (Business to Business). This model is defined as the commercial activity between two business entities, like a supplier and a retailer for example. This e-commerce model cannot be seen by the consumer since it only happens between businesses. We can also talk about Inter-business relation
The third one is the C2C approach (Consumer to Consumer). The oldest e-commerce model existing is the C2C ecommerce business model described as all the exchanges of goods and services between several consumers. EBay and Amazon, for example are the 2 most famous C2C ecommerce website, but there are lots of others. In Singapore, Carousel is also very used for C2C transactions.
The fourth one is the C2B approach, (Consumer to Business). C2B overturns the traditional e-commerce model. Consumer to business (C2B) is a business model in which consumers are at the service of the company by bringing a product or a service, and not the opposite as it is the case traditionally. This is a model which is for example often see in Crowdfunding projects.
The fifth one is the B2A approach (Business to administration). This e-commerce business model gathers the transactions happening between online businesses and administrations. It is not the most used model, but still important to be aware of it.
The last one is rarely used, but is call the C2A approach (Consumer to administration). Same model here, but with the reverse method, which mean that consumers sells products or services online, to an administration.
Ecommerce appeared approximately 35 years ago and since the last few years, it keeps growing. Thanks to the digital transformation of the economy, and the multiple innovation, we can see more and more businesses investing in e-commerce in order to have an online presence. We have seen different stage in the development of e-commerce.
It all started in the 60’s when the improvement of the technologies led to the electronic data exchanges. Just after the 90’s online retailing really started to see a huge increase.
The 90’s is the period of time when it really begins. Even if Pizza Hut claims to be the first company selling online, the first online purchase that has been made was actually in August 1994 by Dan Kohn, a 21 years old American student who set up a website call NetMarket. The product he sold was a CD that he sold to one of his friend. This was the first online transaction using encryption. Encryption is a technology that basically keeps the data safe like credit cards details, between the parties involved. After this, the e-commerce industry started to quickly grow. In 1997, the computer company DELL has become the first IT company to announce an online sale record of 1 million dollars made in only one day. In 2003, 20% of Americans possess a computer with broadband in their house, which means that we see a huge increase of people starting to have internet in their homes, so spending more and more online. This had a huge impact on e-commerce sales, and online sales increased by 24% in 2014. Also, big players like Amazon increased their sales by 26% and keep growing since 2003. (See annex page X Net sales of Amazon from 2004 to 2015.)
Also, the fact that people started to have their own laptop with their own internet connection meant that of course, people were buying more online, but also the way people were buying product has changed. Now, individuals are spending more time researching about the product information before purchasing, as well as checking out the price of the same product on different platform. Amazon and EBay were the 2 most important e-commerce platforms since the beginning of the ecommerce rise. Amazon has started very early to make revenue through affiliate marketing. We can define affiliate marketing as the fact of allowing other websites to earn money if they mention Amazon products to their clients. 41% of Amazon revenues is made through Affiliate Marketing.
Also, the expansion of PayPal has also totally changed the way people buy product online. PayPal streamlined the customer experience. They are basically using the encryption technology in order to allow customers to make financial transactions between computers. Due to the growth of Mobile commerce, PayPal is now one of the biggest winner of the mobile commerce revolution.
Started from 2010, the growth of mobile phone owners has totally affected the way e-commerce works. According to the graph in page X annex X The growth of mobile Commerce, we can see that the online purchase through smartphone have significantly increased from 2012 to 2016. In 2016, 31 billion dollars have been spent through mobile transaction. It represents almost 8% of the total e-commerce transaction and this number will keep growing over the years. Also, one of the consequences of the growth of mobile adoption is the way consumers are shopping. Right now, shoppers are spending much more time researching a product before they buy it. According to a research from GE Capital Retail Bank, 81% of the shoppers are making research on a product before they buy it. With the easiness to the internet access, consumers are using google to look for great deals online, wherever they are. It can be from home in their bed, in the metro, the bus, etc.
Social networks have also changed the way shoppers purchased product with their chosen e-commerce retailers. Thanks to social networks, products and brands are much more reachable for the consumers since they can access it anywhere anytime. Also, the power a brand has online is really important. Shoppers have higher expectation of a brand on social and on digital in general. The e-merchandising of a product is the priority number one for the retailers. If a brand website doesn’t look nice enough, the shopper will just go see a competitor’s brand and buy it. Also, thanks to social media like Facebook, it has allowed new opportunities for companies and brands to sell their product online. Facebook has more than 2 billions active user monthly. The fact that products can be displayed and allow shoppers to buy directly on this social platform is bringing online sales to another level.
Online sales on social networks have a bright future, buying product on Facebook is easy, fast, and convenient. Users simply need to click on the ‘buy’ button of the post, place the order, and add to basket, without even leaving their newsfeed. This is a great opportunity to gain brand awareness, new customers, and target impulse shoppers.