Internet Shopping

The Growth of Online Shopping

Estimated Quarterly U.S. Retail E-commerce Sales as a Percent of Total Quarterly Retail Sales:
1st Quarter 2004 – 4th Quarter 2013

Percent of Total

4th Quarter 2013 Total Retail Sales: $1,147.7  Billion  36% increase over past year
4th Quarter 2013 E-commerce Retail Sales: $83.6 Billion  3.9% increase over past year
7% of total sales

The Growth of Broadband Usage
•	Percentage of households that connect to the Internet using broadband (2009): 63.5%
A growth from 9.2% in 2001
Across nearly all demographics

•	Percentage of households with $100,000 incomes using broadband		94.1%
Percentage of households with $ 25,000 incomes using broadband		35.8%
•	Percentage of households with at least one college degree using broadband	84.5%
Percentage of households without a high school degree using broadband		28.8%
•	Percentages of households of different ethnic origins using broadband:
Asian-American 	77.3%			Non-Hispanic Whites	 68%
African-American 	49.4%			Hispanic			47.9%
•	Percentage of urban households subscribing to broadband		65.9%
Percentage of rural households subscribing to broadband		51%
•	Those who don’t have broadband at home being asked why:
38% say they don’t need		26% say it’s too expensive	
4% say it’s not available where they live

E-Commerce Sales: B2B vs. B2C

The Issue of Sales and Use Tax Collection

•	65% percent of adult Internet users in Kentucky have made online purchases in the previous 6 months.
•	Currently, online purchases are damaging to state and local revenue
•	It is estimated that state and local sales and use taxes due on e-commerce in Kentucky is $2.1 billion in total during 2007—2012; the loss of revenue due to e-commerce costs Kentucky a total of $502.5 million 2007—2012
•	State and local governments lost $9 billion in the year of 2010 alone– it was $12 billion in 2012
•	Revenue is lost in two ways:
o	Sales Tax: Businesses outside of the state are not required to collect sales taxes
o	Use Tax: Kentuckians are required to pay use tax on items purchased outside the state
•	In a survey taken in 2001, 60% said they had never heard of use tax
•	Of the ones who had heard, 40% said they wouldn’t pay it
•	In March 2003, the Kentucky Legislature passed HB 293:  Multi-State Streamlined Sales and Use Tax Agreement – part of a national effort to require Internet and catalog retailers to collect sales taxes for states. 
o	May not stand up to judicial scrutiny because a 1992 Supreme Court decision ruled that states can’t force companies without a physical presence in the state to collect taxes. 	

What Do People Shop Online?

•	Electronic Shopping and Mail-Order Houses—E-Commerce Sales by Merchandise Line
o	Clothing and clothing accessories (includes footwear) 15.3%
o	Other merchandise 14.1%
o	Computer hardware 12.5%
o	Electronics and appliances 9.4%
o	Furniture and home furnishings 8.8%
o	Nonmerchandise receipts 7.7%
o	Office equipment and supplies 6.4%

Why Do People Shop Online? 

•	Distance – people are not in areas with specific goods and stores
o	Oahu, Hawaii… no Wildcat gear
o	Dallas Cowboy fan living in Lexington? No luck. 
•	Convenience
o	Many people buy clothes, groceries and other items online because it is more convenient.
o	Some people are not able to easily travel to make purchase
•	Specialty – a number of hard to find items can be found online
o	Rare books
o	Antiques
o	Just browse through eBay…
•	Price – a number of items can be found more cheaply online 
o	Competition
o	No sales tax is charged (depends on location & company)
•	Equalization
o	Many people shop online because they do not face discrimination that they encounter in face-to-face shopping experiences. 

•	Anonymity/Privacy
o	The porn industry is one of the most lucrative online businesses
o	There is less risk that you will feel social censure. 
o	Men were the main pornography customers, however: 
o	Women are purchasing pornography in increasing numbers
•	Cultural influences (Sex in the City)
•	Results: increased purchase of sex toys and pornography

What Prevents People From Shopping Online? 

•	Security Concerns
o	The insecure Internet was never meant to be secure
o	As packets travel they can be intercepted
o	Credit card numbers can be read and stolen
o	More than 11.1million adults were victims of identity theft in 2009, costing victims $54 billion
The mean cost per victim is $500, and most victims pay nothing due to zero-liability fraud protection programs offered by their financial institutions.
o	Organized crime is responsible (Russia and Ukraine)
•	Two approaches for secure transactions:
o	Secure Electronic Transaction (SET) protocol:
•	Encrypts personal financial information
•	Purchases charged to customer's credit card
•	Endorsed by VISA, MasterCard, American Express, Microsoft, Netscape, etc.
•	Convenient, but not as secure as:
o	Electronic or "cyber-dollar" methods:
•	Consumers buy encrypted "coins" or "tokens"
•	Personal information is not required
•	Purchases are totally anonymous
•	Takes a little trouble, but ensures privacy
•	Privacy Concerns – how will my private information be used? 
o	Identity theft
o	Spam 
o	Junk mail 
o	Unsolicited phone calls
•	Did you know that when you use the web: 
o	Your movements are tracked and recorded
o	Your purchases are tracked and recorded
o	Demographic info about you is gathered
o	This info may be used and/or abused
o	Can wind up in anybody's hands
•	What is a "cookie?"
o	Data placed on your hard drive by a website
o	Makes it easier to use websites that require a username and password by storing that info, but:
o	Can contain all kinds of information:
•	Favorite websites
•	Dates and frequency of visits
•	All purchases made and the prices
•	Any information you enter on a form
o	Really benefits the seller
o	One website can't read a cookie from another
o	Bark like a seal if you believe that
o	Can be disabled in your browser
•	What is web tracking?
o	Detailed examination of web server logs tells:
•	The pages you visit and the route you took
•	The purchases you made
•	The site you came in from
•	The site you leave to
o	Software "sniffers" literally:
•	Examine every packet entering or leaving
•	Gather demographic information on you that may be sold to advertisers
•	What is an Internet "passport?"
o	Technology that allows users to control: 
•	What information they will allow to be released to websites and how it will be used
•	What information will be collected about their surfing and how it will be used
o	There are three main passport technologies:
•	Platform for Privacy Preferences (P3P)
•	Internet Content and Exchange (ICE) standard
•	Open Profiling Standard (OPS)

Where and How Do People Choose to Shop? 

•	Reputation
o	Brick and Mortar: 
•	Barnes & Nobel (BN.com) 	
•	GAP (Gap.com) 
•	Wal-Mart (walmart.com) 
•	Target (target.com)
o	Online Branding:
•	Amazon.com 
•	Ebay.com 
•	Yahoo.com
o	Look and Feel:
•	If the website looks shady, may shop elsewhere. If the website looks legit, may feel comfortable enough to buy. 
•	Price
o	Some people jump between websites to compare prices
o	Others use a Shopping BOT
•	PriceGrabber.com
•	MySimon.com
•	Froogle.com
•	BizRate.com
•	Certification
o	Security Certification
•	VeriSign: publicly traded company that secures 30% of transactions that occur in North America. Also confirms that a secure website is a legitimate company doing business in the United States, insures that all customer information is sent over a secure server and is encrypted before it is transmitted. 
o	Privacy Certification
•	TRUSTe: non-profit organization that certifies specific websites are following certain privacy policies including how they collect, use and share customer information. 
o	Service Certification
•	BBBOnline: Better Business Bureau Online 
•	How Merchandise is Acquired
o	Business-to-person
•	Barnes & Noble.com
•	Wal-Mart.com
•	Target.com
o	Person-to-Person
•	eBay.com
•	Amazon Marketplace
•	Half.com