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INTRODUCTION AND BACKGROUND
The growth and integration of information and communication technology are changing our society, economy and our lifestyle. The Internet as a main communication channel has provided the opportunity for e-commerce to expand worldwide. E-commerce is now considered as the future direction in which organizations and business should move. Expansion of the Internet has led to significant change in the methodology of manage business globally. The Internet is, probably, the most effective marketing tool in the modern world (Haig, 2001). It enables businesses to interact with their market on a higher level. Companies and consumers can find more about each other than ever before and create a sort of two-way relationship.
In 1991 the Internet became available for commercial use and it opened way for development of e-commerce. Since that date thousands of companies and organisations opened their own web sites. Originally, term e-commerce associated with Electronic Funds Transfer (EFT) and Electronic Data Interchange (EDI) which used for execution of commercial transactions electronically and gave an opportunity for companies to exchange business information. These technologies were available from the late 1970s and they allowed business companies and organisations to transfer commercial documentation electronically. In 1994 the Internet started to carry forward among the general public and became more popular. However, it took nearly four years to develop the security protocols and DSL (Digital Subscriber Line) which allowed fast access and permanent connection to the Internet. A large number of business companies presented their services in World Wide Web. After that the meaning of the word "e-commerce" was changed. Now it is defined as the process of purchasing goods and services through the Internet using secured connections and electronic payment systems.
Recently, e-commerce is a massive industry with endless online stores and online buyers. It has great deal of advantages over the "brick and mortar" stores and mail order catalogues. First of all, people have easy access to the Internet. They can see actual prices, make comparative study, select products with best prices and then buy them without going anywhere. Moreover, online stores usually have better range of products and lower prices.
There many business models for e-commerce and they are developing rapidly. One of the latest developments is Relay Marketing. It is actually improvement of Just in Time inventory system, which applied to online retailing with taking advantage of Internet. Information is directly "relayed" to the supplier, which mean, that owner of the website or Relay do not actually need to have a stock. This is the main difference over the other e-commerce business models, although they all based on the same conception of purchasing products or services using Internet.
In a traditional e-commerce model the distributor is fully responsible for his product, including stock control, delivery, maintenance, advertisement etc. Good example of traditional e-commerce model is the brand which has own website and sells their products online in addition to traditional retail. Relay Marketing is a third-party that advertises Brand's products, sells them online, links with supplier and gets the commission for handling the transaction (Goldschmidt, 2003). The advantages of this type of model are that it has the opportunity to turn higher profit margins, according to the fact that many of the overhead expenses associated with a physical retail space, such as warehouse, retail space, and labour, can be significantly mitigated. Relay marketing also allows for a retailer to reach customers worldwide, whilst still only maintaining one location for each and every customer.
There are two types of Relay Marketing: Pure relay and Affiliate relay. In pure relay model company purchases products only from one supplier. For example, big warehouse which supply traditional retailers, for addition can sell their products online through Relay Company without spending anything. Affiliate Relay does the same, except that they have more than one supplier. Online flower shop is good example. It is more convenient to have local suppliers in all cities rather than deliver flowers across all country.
At present the majority of all Relay Marketing business is B2C (Business to Customer). However there are many opportunities to develop this e-commerce business model to B2B (Business to Business) system.
In this paper relay marketing will be outlined in more details as a perspective development of e-commerce. Advantages and disadvantages of this business model will be given and examples of relay companies will be presented.
Relay marketing has become one of the most considerable alternatives to companies depending on e-commerce as a major marketing strategy. It has been called relay marketing due to the principle of relaying the sale to the supplier who is responsible for delivering the product directly to the customer. Where responsibility of the relay company is to reach customers in a geographically scattered places and convince them to buy from its own website, as a consequence, the relay company sends the sales order to the supplier who should deliver the product directly to the customer and get paid by the relay company after making sure that the product has been effectively received on time by the customer. Figure (1) illustrates the four stages through which the product passes before the supplier is paid. Hence, the relay company takes percentage of the product sales value which has been sold through its website, this is also known as "pay for performance marketing" (Goldschmidt, 2003).
The relay marketing four stages as shown in the figure:
- The customer orders from and pays to the relay company.
- The relay company relays the order to the supplier.
- The supplier delivers the product to the customer.
- The relay company pays the supplier in return for the product after deducting commission.
To verify the relay marketing successfulness, assume that there is a company (supplier) who produces a large number of products, this company has to advertise its products through coloured printed catalogues, TV advertisement and, sometimes, radio advertisements etc. all of which are to get the buyer interested in the product and potentially buy through the internet, telephone or to come and buy in person. In this case the company is paying for the marketing aspects as well as for the marketing research which is needed to know what type and strategy of advertisement is the most suitable for a particular type of product. This company assumes that the profit associated with the mass of sales is vast enough to cover all the advertising expenditure, but what if it did not? Thus, this company is taking an immense risk all the time.
On the other hand, assume that another company (relay company) offered to advertise, motivate, and convince the customer to buy the supplier's product through its website; hence, the business will inevitably develop and flourish. However, the relay company will deduct an agreed percentage (commission) of every product value being sold through its website. The relay company will tolerate the cost of the product marketing. If the marketing strategy did not succeed the relay company would lose money, by contrast, if it did well, the relay company would make an extensive profit without any conditions or limitations to how much should it spend or earn.
All in all, in the traditional marketing approach the supplier is responsible for paying all the advertising expenditure hoping to sell enough products to cover these expenses, in other words, the supplier holds a high risk. However, in the relay marketing approach, the relay company is responsible for all the marketing expenditures to sell as many products as possible hoping to make a high profit without manufacturing or even seeing the product. Therefore, the supplier company is willing to pay commission to the relay company if his product is increasingly being sold, and the relay company is motivated to advertise and do efforts to sell the product knowing that it will gain a commission on every successful trade. This relationship is called the "win-win relationship", where every side wins, gives the opportunity to relay marketing to flourish, remain and evolve in the future (Duffy, 2005).Disadvantages associated with relay marketing.
As any other new innovation, relay marketing strategy has some limitations affecting the relay company and the supplier company as well. For instance, when the customer orders a particular type of product through the relay company's website he or she does not know who the supplier is, or whom responsibility is to deliver the product at time without any default. Therefore, if any fault happened to the product such as being bad quality or damaged during the transportation or even delayed during the delivery process, the customer would implicate the relay company, which could affect the credibility associated with its brand. Therefore, the relay company should be confident that the supplier will deliver the product in a well condition and at a desired time to the customer, all of which is very difficult to be assured with due to the fact that the relay company does not have any control on the delivery process. The only way to maintain the delivery efficiency is to deal with reputable suppliers.
Furthermore, there are some disadvantages concerning the supplier's company, such as its brand would remain anonymous since the customers know the product through the relay company which makes the supplier's brand less prevalent over the time.
TYPES OF RELAY MARKETING AND CASE STUDIES
Relay marketing consists of two types which are: pure relay marketing and affiliate relay marketing. Both of them are used in the e-commerce of Business-to-business (B2B) and Business-to-Customer (B2C) (Turban et al., 2006). The only difference between the two types of relay marketing is that pure relay has only one supplier who supplies for all customers, whereas affiliate relay has several suppliers which are distributed in different regions. No matter how many suppliers they have, the important point, which is common between the two types, is that the relay company should have their own website and have a deal with the supplier.
There are numerous common aspects between pure relay and affiliate relay. Firstly, the relay company only provides the platform for suppliers to sell their goods. It means that the company does not have stock in their warehouse; therefore, they are not responsible for the delivery of products. Secondly, the relay company has no control on the quality of products; therefore, the heavy reliance on the suppliers leads to a high risk taken by the relay company. Thirdly, customers think that they are buying these products from the relay company, so if the goods are low quality or are not delivered on time, the relay company may lose its credibility and reputation.Pure Relay Marketing
Pure relay marketing has only one supplier or manufacturer to supply the goods since the supplier can provide all the range of products that the relay company needs. In the most cases, retailers may seek for a reliable website (relay company) to sell their products if a great deal of inventory cannot be handled. Furthermore, when consumers are interested in product online, they send an order and pay to the relay company. The company will pass the order to the supplier, after that, the supplier will deliver the product to the customer directly and provide the service after sales. After delivering the product to the customer on time, the supplier expects to receive payment from the relay company (Laudon, 2002). The whole process is called pure relay or direct relay.
Sainsbury's, one of the famous supermarkets in the UK, has passed its 140th anniversary this year. It is part of J Sainsbury plc, which contains 290 convenience stores and 502 supermarkets. According to annual report (2008) of J Sainsbury plc, the online shopping service is obtainable to 88% families of the UK, particularly food delivery which can be ordered through the internet. In order to gain household's interests, they also provide non-food goods on the online shop. People have equal rights to select Sainsbury's or other brands product. As King (2009) points out, Sainsbury's has aim to offer products in a great quality and meantime keep the low sales price. It plays a significant role in the UK market.
For instance, Sainsbury's website sells fridges and washing machines which are not exist in its stores. That means these products are not in stock. Instead Sainsbury's order these products from DRL which is one of the biggest appliance retailers in the UK, and takes commission for transaction. So Sainsbury's is playing role as a relay company. As can be seen from figure 2, when clients place an order for washing machine from Sainsbury's website, the order will pass to DRL as soon as Sainsbury's receives the payment. Then DRL will deliver it to the customer directly.
As Roberts (2009) states, DRL needs to manage relationship with Sainsbury's for distributing its products. Sainsbury's is a reputable company and customers trust their brand, thus they are more likely to buy the products from them. So Sainsbury's is making profit by selling trust. Even though Sainsbury's never sees or touches the product, people still trust the brand when they purchase it online. The supplier takes responsibility for the delivery and after sale services. However, Sainsbury's should manage connection between customer and supplier to facilitate after sale service and solve problems with the delivery process. The advantage of having one supplier is that it is easier to effectively communicate and control the performance than having more than one supplier as it is the way in affiliate relay marketing. On the other hand, the relay company (Sainsbury's) is completely dependent on the supplier which will magnify the risk undertaken in case the supplier (DRL) had shortage in production.
Under normal circumstances, a good product usually combines a high quality and satisfied customer services. Based on reviews of online Sainsbury's kitchen appliances, the rating of customer service is significantly low. After analyzing the problems, we can summarize the following points: In the first place, DRL probably provides unacceptable delays on appliances delivery to customers (up to two months). Therefore, customers have to wait for a long time and finally could cancel the order. In the second place, DRL may do faults that appliance could be broken on the way of delivery or an incorrect appliance could be sent. Consumers would be disappointed in this situation and would decide to conceder another supplier. In the third place, the item could be out of stock; however, it is still presented available on the website. Because of poor communication between DRL and Sainsbury's, customers will not trust the brand again. These problems were serious and could heavily ruin Sainsbury's reputation. Therefore, Sainsbury's management needs to try their best to address the poor customer service which could be relatively easy to control and monitor since there is only one supplier (DRL).Affiliate Relay Marketing
Affiliate relay marketing is the second type of relay marketing, where in this model the company has at least two suppliers which can provide various products or services to their customers. This paper will elaborate two examples of affiliate relay companies to give a better recognition on how affiliate marketing model works and will provide SWOT analysis to assist in determining whether it is effective or not (Chaffey, 2007). FlyingFlowers.co.uk and Allthingsgreen.net were chosen as examples. Although both companies are using affiliate marketing model, they have some differences. FlyingFlowers, which works as a relay for flower shops, sells flowers online, therefore they should have suppliers across all the country to deliver fresh flowers immediately to the customer. Whereas Allthingsgreen.net, which sells environmental friendly products, does not require the fast delivery to keep the product fresh, however, it needs more suppliers to provide variety in its products. Having more than one supplier could lead to difficulties in controlling the quality of products, and this could be the most important drawback of the affiliate relay marketing model.
FlyingFlowers is a company which applies the strategy of affiliate relay marketing and uses this model in flower industry; they have local suppliers scattering throughout the UK. FlyingFlowers was established in 1981 and grew up of offering services to holiday-maker that need high quality and low-cost flowers. There are more than 750,000 bouquets which are sent by FlyingFlowers around the United Kingdom every year. FlyingFlowers has 25 years with flower industry and experts in the service of delivering flowers. Every bloom is checked before it was delivered and ensured that the quality is matching the standard of FlyingFlowers's customers. It operates as an affiliate relay company, For instance, if the customer, who lives in Bath, bought flowers from FlyingFlowers website and asked to send them to his wife who lives in London, then the supplier in London will deliver flowers fresh to his wife (Figure 3). Dealing with a various number of suppliers saves time and flowers are delivered fresh.
The most important strength associated with FlyingFlowers strategy, and as any other affiliate relay company, is that they do not hold stock. In addition, it saves time because fresh flowers are sent directly from local florist to local buyers.
FlyingFlowers provides plenty type of flowers and perfect gifts for different occasions. Furthermore, FlyingFlowers has a number of delivery options such as sending by post, delivery by specific courier or choosing the date of delivery to keep flowers fresh and in order to make sure all flowers are kept in excellent conditions during delivery; flowers are wrapped in a presentation box.Weakness
The obvious weakness is that their communication is usually inefficient compared to the traditional online shops. For example, if they want to launch new product, they need to communicate with all local suppliers and make sure that they are using the same type of flowers and bouquet design, this usually takes a relatively long time (Chaffey, 2007).
Due to the fact that customers can only see the pictures online instead of seeing a real bouquet in the flower shop, customers can not check and smell the aroma of flowers; therefore the delivered product might not meet the customer's expectations. Moreover, the quality of flowers from different suppliers could vary affecting the company's reputation.Opportunity
FlyingFlowers offers different hand tied bouquets and simply stems for different occasions such as Christmas, anniversary, engagements etc. However, there are still potential opportunities for FlyingFlowers relay company to offer customization service, which could provide customers with the capability of designing their own flower arrangements that are not originally included in the online catalogue. In details, FlyingFlowers should provide daily catalogue with prices for each type of flower and allow customer to choose what type of flowers they would prefer to include in their bouquet.
Moreover, FlyingFlowers could record the sales in every area and arrange them in database which could help to understand the local purchasing behaviour. Analysing this data could help the suppliers (local florists) to control and manage their stock more effectively in order to keep the flowers fresh. For instance, some florists tend to keep the flowers in a refrigerator to ensure that they are reserved in a good condition. However, if FlyingFlowers could collect the local purchasing data and do data analysis, then it could be helpful for the local florist to reduce the stock to an optimum level.Threat
All bouquets are hand-made and delivered by different suppliers, therefore it is very difficult for FlyingFlowers to control the quality of flowers and the on time delivery. If a local florist sent wrong flowers or missed the delivery date, then this would affect the reputation of FlyingFlowers company.
Another example of affiliate relay marketing model is Allthingsgreen.net which provides eco-friendly people marketplace to buy green products, moreover, the products are classified into five types which are: recycled, natural, fair-trade, organic and eco-friendly. All of which have different colour marks to ease the differentiation between them. Meanwhile, the website offer Business to Business online platform for customers who want to sell their products online. Also this company uses basic affiliate relay marketing model where the customer orders products through the website, then supplier will deliver the products to customer (Figure 4). Although Allthingsgreen.net is a new company, which was established in 2004, it had around 350,000 visitors last year. This supports the successfulness of affiliate relay marketing innovation.
SWOT analysis for Allthingsgreen.netStrength
Due to the fact that Allthingsgreen.net is an affiliate relay marketing company, the main strength is that it does not hold any stock and all the products are delivered by the suppliers. Allthingsgreen.net reduced a great deal of costs compared with the traditional e-commerce companies which need to pay a rent or buy storehouse and hire more employees to manage and handle the products.
Allthingsgreen.net company uses E-commerce trader memberships service which gives the opportunity to customers to sell their products online, this makes the company provide a wider variety of products (food, clothing, Energy saving products etc.) through its website.Weakness
The main weakness associated with the company's strategy is that the prices of the environmental friendly products are higher than the prices of the normal products. Although Allthingsgreen.net website provides a platform to allow people to sell their products online, it charges them 75 pound for three month in addition to commission on every successful transaction. Therefore, this will lead suppliers to give higher prices on their products, thus, becoming less competitive amongst other companies.Opportunity
Lately, the rise of eco-awareness leads people to consider environmental friendly products (the green products) over the conventional ones. Therefore more and more consumers are purchasing "green" products trying to protect the planet and reduce environmental pollution. Recent research points out that more than 30% of population prefer to buy eco-friendly products, although they have a relatively high prices (Mckinsey.com, 2008). Therefore, "green" goods market is becoming stronger and has a flourishing potential in the future. In addition, Allthingsgreen company can cooperate with international suppliers in order to expand their market share.Threat
The major threat is quality control. As Allthingsgreen company uses affiliate relay marketing model, the website has plenty of suppliers which provide various products. Therefore, there are difficulties associated with the quality control and being confidant that all the products sold are environmental friendly.
Overall, the power of Internet is increasing and almost all businesses are moving toward utilizing the Internet as an incredibly effective marketing tool. Recently, there are many business marketing models based on the Internet giving customers the ability to buy and pay online, which is known as "E-commerce". One of the most successful models of E-commerce is relay marketing. Relay marketing model consist of two types which are: pure and affiliate relay marketing. They both based on the same principle, which is being third-party company, providing connection between customer and supplier through its website. However, the only difference between them is that pure relay marketing model has only one supplier, as opposed to affiliate relay marketing model which has more than one. Each type of the model has its own advantages and disadvantages, for instance, considering the former model provides better communication with supplier, leading to a better quality and on-time delivery control. While the latter model covers a wider area in addition to providing a higher variation of products due to having a relatively larger number of suppliers scattering around the country.
The main advantage of the relay marketing model is that the relay company does not hold a stock, which means reduction in overhead expenses associated with it, such as: warehouses, labours, transportations etc. In addition starting a relay company needs a relatively low capital and once it is started it earns money very quickly, due to the fact that the relay company gets paid before delivering the product. However, there are few disadvantages associated with this model, such as being completely dependent on the supplier to deliver the product in a proper condition and on time and this could be extremely difficult to monitor and control. Furthermore, being totally dependent on the Internet could inherit its weaknesses, such as access limitations, security problems and intangibility constraints. All in all,its advantages outweigh its disadvantages and being aware of the relay marketing model aspects could make it a potentially successful business in the future.
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