Online shops for consumer electronics: A case of Media-Saturn

TABLE OF CONTENTS

Electronic Commerce as a New Sales Channel
Business-to-Consumer Retailing
Market Participants in Electronic Business
Online Retailing in Germany

The Consumer Electronics Market in Germany
Consumer Electronics' Competitive Analysis
Entry barriers
Power of Suppliers
Power of Buyers
Threat of Substitutes
Rivalry
Opportunities for Traditional Outlets
Threats to Traditional Outlets

Case Study: Media-Saturn Holding
Internal Analysis of Media Markt
Strengths
Brand Reputation
Localisation
Touch-and-Feel-Effect
Weakness
Advertising Strategy

Position of Competitors

Integrating an Online Shop

References

Bibliography

ELECTRONIC COMMERCE AS A NEW SALES CHANNEL

BUSINESS-TO-CONSUMER RETAILING

The dissemination of the internet has had a large impact on business and has created new opportunities for companies. It has opened new distribution channels for both business-to- business (B2B) and business-to-consumer (B2C) products and services. Around the year 2000 a lot of new ventures were founded but also soon disappeared when the "dot-com bubble" burst. The remaining companies in the market however had time to expand their business at a steady pace. B2C online retailing is growing with the dissemination of broadband access (Schneider, 2011).

MARKET PARTICIPANTS IN ELECTRONIC BUSINESS

The internet activities of companies can be classified into three types of businesses (Porra, 1999, Parks et al. 1999 in Porra, 2000, p. 389):

1) traditional: the internet activities are just an extension of the current business
2) transitional: companies that are currently transitioning their entire business to the web
3) all digital: companies that are totally dependent on the internet.

Often electronic business is categorised in just two segments: pure e-business and click- and-mortar business (Koo et al. 2006). Pure online firms "tend to maximize the use of the Internet as their only business channel, whereas click-and-mortar firms are likely to leverage their existing resources to maximize profit from e-business, as well as to avoid channel conflicts" (Ghemawat & Baird, 1998 in Koo et al., 2006, p. 289). One of the greatest challenges of traditional firms is balancing their sales channels in order to avoid channel cannibalism.

Click-and-mortar companies have to determine which strategy they want to pursue with their online branch. With the fast growth of online businesses in the late 1990s to the early 2000s some writers suggested that the corporate strategy formulation would become obsolete and total flexibility was needed. Porter (2001) however argued that corporate strategies would not become obsolete, but even more important in some businesses.

ONLINE RETAILING IN GERMANY

In Germany online retailing is gaining importance, too. Total online sales in Germany in 2010 had a value of EUR 25.3 billion compared to EUR 19.3 billion in 2008 (Bundesverband des deutschen Versandhandels "BVH", 2009, 2011). These figures include products and digital services, e.g. sale of tickets. However, the largest part of online sales is provided by the fashion retail sector (BVH, 2010). Thus traditional outlets lose a share of the consumer's spending. In order to regain this lost share, they can set up their own online shop. Online shops are a significant part of a company's sales channels, but they compete with pure online retailers that offer several brands in their shops.

Online shopping is a distance business comparable to mail order business. Thus mail order companies see their online shop as an additional sales channel very much related to their traditional channel and therefore attractive to customers. German mail order companies like Neckermann opened online shops in the mid-90s (neckermann.de GmbH, 2008), so they included online retailing early into their corporate strategy.

Other industries took more time to follow. H&M launched their web shop in 2007

(http://www.ice-blog.de/305-h-m-online-shop, 2007). C&A had failed on their online shop in 2000 and returned to sell online in 2008 (Stylicon, 2008). The online market for consumer electronics is very fragmented and not dominated by the large traditional electronics retailers, as none of them has launched an extensive online shop. Pure online retailers like amazon, ebay and a multitude of smaller electronics retailers have filled this gap. These smaller companies attract customers through listings in search engines and shopbots, i.e. websites which compare prices of various online shops.

The following graph illustrates the ten largest online shops in Germany in 2008. It is notable that two of them deal only with consumer electronics (conrad.de and notebooksbilliger.de) and most of the other shops offer at least a range of consumer electronics among other products. This indicates that consumer electronics play an Sales of the ten largest online shops in Germany in 2008

Abbildung in dieser Leseprobe nicht enthalten

While consumer electronics play an important role in online sales, only four per cent of all retail sales in Germany are generated online (Handelsverband Deutschland, 2011). In absolute figures the importance of consumer electronics online shops is small. This could explain why Media-Saturn neglected the online business up to now. In order to better understand Media-Saturn's decision not to launch a full online shop right from the beginning of the internet shops, it is also useful to analyse the market for consumer electronics.

THE CONSUMER ELECTRONICS MARKET IN GERMANY

The traditional consumer electronics market in Germany is dominated by electronics retail chains like Media Markt, Saturn, expert and Promarkt. The following chart illustrates the importance of the different sales' channels for consumer electronics:

Abbildung in dieser Leseprobe nicht enthalten

SOURCE: GFK (NO DATE) IN SCHIDLACK ET AL. (2010)

Germany is an attractive market for consumer electronics due to the high spending power of consumers and their general interest for the new technologies. The consumer electronics industry provides a fast turnover in innovations and upgraded technology.

CONSUMER ELECTRONICS' COMPETITIVE ANALYSIS

Porter's five forces analysis is useful to get an insight into the consumer electronics retailing industry.

ENTRY BARRIERS

Entry barriers to the consumer electronics retailing are moderately high. Stores have to deal with the low margins in the industry, i.e. they have to attract large numbers of customers. Large retail chains dominate the market, so new entrants who would start on a smaller scale need to consider their local competitive environment. In urban areas customers may choose between various retail chains, but in less populated areas there might be none of the large retailers close by, thus providing an opportunity for smaller entrants.

Today these traditional outlets get challenged by pure online players. Market entry for web shops is very easy which is why some of the smaller independent electronics retailers use an online shop to complement their traditional business (Schidlack et al., 2010). The online market is more dynamic than traditional outlets. Some web shops have found strategies to increase the margins per item via fast stock turnover (Hell, 2011).

POWER OF SUPPLIERS

The power of suppliers in retailing in general is limited (Investopedia, 2011), because the retailers decide which items they stock. The high rate of innovation and upgrading in the electronics industry itself prevents one supplier from getting too powerful. The retailers can therefore make use of this competitive situation within the electronics industry.

POWER OF BUYERS

Private consumers hold great power in the consumer electronics market, because outlets operate with low margins per product and generate their turnover by scale (Hell, 2011). Therefore they need to attract large numbers of customers. The customers on the other hand can choose between various outlets, traditional and online shops. Switching costs are low for them, especially on the internet where prices are very transparent due to shopbots.

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