E-Commerce

Introduction

The post-industrial society stimulated the development of new generation economy characterized by a broad application of the information technologies and electronic commerce. In the industry of fashion, as well as in other fields of business activity, information becomes one of the most important factors of competitive advantage. Further, more volume of information became available for all market participants, both for consumers and suppliers. The development of electronic commerce and means of communications give new opportunities for collection, analysis, and the information processing necessary for the promotion of goods and rendering of services taking into account the expectations of the consumers’ targeted group (Chaffey 2007). The given essay will discuss the practices of intermediation, disintermediation and reintermediation in Swedish H&M Company as well as the implication of the information exchange between it, its intermediaries, and customers.

The appearance of the internet promoted the development of e-commerce in mass production industry. The IDR cycle is present in this area, and the traditional stores are the dominant ones in the intermediate phase. However, with the entrance of electronic commerce-only (EC-only), retail companies and traditional companies like H&M can lose more than 50 % of income. Therefore, traditional H&M has to strengthen its position in the retail market by the reintermediating its business strategy. The company is aimed at the transformation into the EC-able intermediary for the diversification of its own business and marketing strategies and the retention of competitive advantage in electronic commerce (Janssen & Klievink 2009; Doole & Lowe 2005).

The Model of Intermediation - Disintermediation - Reintermediation Cycle in H&M

H&M was founded about hundred years ago by Erling Persson, who opened the first store in a small town of Westeros located near Stockholm. At first, there were mostly different goods in the shop assortment, but in 1947 the direct-sales representative from Sweden decided to go to America for the exchange of experience. Persson found out that the dealers in America got profit at the expense of a big turn of goods but not from the difference between selling and purchasing prices. The company has started to apply new technologies of electronic commerce for the promotion of its own brand and extension of its network recently (Caro & Martinez-de-Albeniz 2014; Su & Zhang 2008).

The effective communication with consumers based on the use of modern means of search, display, and information processing become the key factors of success. The market economy is focused on receiving profit. Therefore, any commercial activity can be considered as the sphere of enhancement of the capital or “resources.” In the activity of any market subject, there can be a problem of the shortage of any (including monetary) resources (May 2000; Doole & Lowe 2008). At the same time, there are always actors which have more resources than the current needs for them. Free resources not intended for direct consumption assume the existence of a set of investment alternatives. Thus, there are always two categories of actors in the market: those who have excessive resource units (RU) and those who have resource unit deficiency (RUD). The retail market companies use the intermediation-disintermediation-reintermediation (IDR) cycle for the effective correlation of RU and RUD (Chircu & Kauffman 1999; Chaffey 2009; Ryu & Hung 2009).

In order to understand the IDR cycle in the H&M Company, it is necessary to give the definition of what these processes are. Thus, the process of intermediation represents the company, which interjects only between a buyer and a seller. The disintermediation process includes the forcing of the established intermediary out from the market. The reintermediation is the reestablishment of a company as an intermediary in the market (Chircu & Kauffman 1999; Shunk et al. 2007; Doole & Lowe 2008).

The intermediaries are also subdivided into three main categories: traditional, electronic commerce-only (EC-only), and electronic commerce-able (EC-able) intermediaries. The traditional ones implement the selling-buying procedure within the traditional market by means of the physical shops. The EC-only intermediary is represented by the companies which offer their services only via the internet. Such companies are focused only on the development of the e-commerce channels (Steele 2009; Ryu & Hung 2009).

The intermediation phase. Being a traditional retail company, H&M is an intermediary between its suppliers and customers. The company receives its income from the retail prices. The priority of the EC-only intermediary at this phase would strengthen the company’s market position due to the introduction of additional services for customers such as online reservation of goods, goods and prices comparison, etc (Bhardwaj & Fairhurst 2010). Moreover, this type of intermediary would lower prices for the goods due to the elimination of a human factor in the “company-customer” link. However, the company’s management understood the disadvantages of the traditional approach to H&M such as the company’s resistance to changes and poor implementation of new technologies and e-commerce practices. Thus, the company aimed at the disintermediation of its traditional approach for the expansion of its marketing presence (Mo 2015; Su & Zhang 2008).

The disintermediation phase. This phase is aimed at the decrease of a number of intermediaries in the link from producer to consumer or disintermediation. The H&M Company started to disintermediate and change its role in the retail goods market. Despite the possible increase of the profit in case the company shifts into EC-only direction, it did not risk to be pulled out from the market. Thus, the company has come to the third phase – reintermediation (Rosenbloom 2007).

The reintermediation phase. Being a traditional retail company, H&M shifted its focus to new informational channel – the internet and became the EC-able company. The reintermediation phase comprises of the company’s expertise, image and reputation, and well-developed customer relationship management with the benefits of the internet application in its activities. Along with the traditional shops, the company opens online-shops for the better conquest of the world retail market (Roush 2007).

Thus, H&M entered the international market not only as a traditional retailer, but as the EC-able company. It was promoted by new informational and investment technologies and the globalization process, which essentially increased the possibilities of direct interaction with customers. The implementation of information technologies in e-commerce allowed rendering wide range of goods to customers (Shunk et al. 2007).

The Information Exchange between H&M, its Intermediaries, and Consumers

The use of internet technologies in business does not lead only to the increase in speed of business information exchange, but also promotes an increase of the data accuracy. The market economy, irrespective of the level of its development, assumes the existence of considerable information asymmetries and is, therefore, risky. Connecting everybody and everything into a uniform global network, the internet provides an access to primary sources of the demanded data and eliminates their distortion (Bhardwaj & Fairhurst 2010; Asplund & Nocke 2006). As a result, the probability of adoption of adequate business decisions considerably increases. At last, the transfer of business processes into the network promotes the noticeable reduction in the cost of information exchange. The depreciation of receiving and transferring of any data allows reorganizing the systems of corporate supply and sales of products and minimizing non-productive expenses. Eventually, the reduction in access cost of reliable business information leads to the increase in competitiveness among retail companies and their production in the market (Doole & Lowe 2005; Choi 2013a).

One of the most essential advantages of electronic commerce is the reduction of the number of intermediaries and their role in the “producer-consumer” chain (disintermediation). In the “business-consumer” (B2C) segment, there is a real opportunity to act without the participation of various resellers, distributors, and dealers: the virtual retail shop orders goods directly from the producer, and buyers purchase them directly from the website. In the “business-business” (B2B) segment, there is the reduction of a number of links in the material support system. The internet technologies allow bringing the mechanism of deliveries “just-in-time” to perfection, which means a decrease in the dependence of suppliers and customers on transport and warehouse companies (Lin, Lo & Sung 2006; ATKearney 2015).

The scenario of overcoming hard market situation using marketing tools as a result of an active informatization of market business processes in H&M can be described by three components:

  • The involvement of marketing information systems into the relations with clients at the initial stage of business process.
  • The use of network technologies for the distribution, address delivery, and reproduction of the integrated information from fashion seasons on the basis of “a virtual podium” and other systems of telepresence for bilateral B2C and B2B communications in real time.
  • The development of perspective complex means of processing and displaying the information for advertising, for presentations of the developments at a final stage, for goods’ promotion in the mass market segment, and, finally, for the realization of visual merchandising on the basis of “virtual fitting rooms” and “magic mirrors” (Choi 2013a).

The companies – informational intermediaries – provide the implementation of those information exchange requirements which are imposed by the market participants, namely speed, reliability, and a relatively low cost of keeping and obtaining data necessary for business development in B2C and B2B spheres. During several years, the e-commerce market in B2C segment has been actively formed (Lyer, Singh & Salam 2005; Lin, Lo & Sung 2006). There are many options for distribution channels. H&M can sell its goods directly or use one-, two-, and three-level distribution channels or intermediaries. The internet and other information technologies created an opportunity for the company to get an access to the end users that, in some cases, allows it avoiding the creation of a multilevel system of intermediaries and establishing the cooperation with consumers at the direct marketing Level (Dyshman 2013; Nawaz & Saleem 2010).

In 2015, H&M has opened its own online stores for the expansion of the information volume brought by the informational intermediaries to potential consumers including the most detailed list of the offered goods and services. Moreover, the company started to gather different marketing information about the competitors and their successes and failures with the help of the informational intermediaries (Nawaz & Saleem 2010). In their turn, the end users of the H&M production also seek for receiving the fullest information about the company from the informational intermediaries. In addition to this, the escalating requirements of the internet users force the intermediaries to diversify their activities (Ecommerce News 2015; Evans 2015).

The H&M Company uses various organizational forms of the informational intermediaries for the short period of its e-commerce. The informational sites, online stores, and catalogs are the most typical informational intermediaries the company uses. Each of them has various mechanisms of the information exchange and models of business. The informational sites are purely informational intermediaries. The company has the websites containing the catalogs of its production. Its virtual online store is other popular mechanism of the so-called contextual trade used by H&M. Therefore, B2B online stores have a specialized character and are focused on the consumers from a certain region. As a matter of fact, such informational sites act as peculiar virtual “information boards”. They exist due to the collection of payments for each advertisement placed on a board. Thus, like any mass market company, whether physical or virtual, H&M met the problem of a strategic choice after the successful period of the initial accumulation of consumers. Then, the company aimed at the stable information exchange with clients and diversification of its own services by means of the entrance into the new markets (Chaffey 2007; Evans 2015; Asplund & Nocke 2006).

Conclusion

Most producers do not sell the products directly to the end consumers. They are connected with one or several distribution channels where different intermediaries work. The most important functions carried out by intermediaries include the distribution of information, promotion of goods, formation of orders and payments. The choice of intermediaries represents the question of a relative efficiency of the distribution channel defined by the relation of a probable effect from the use of any sales channel to the costs of its creation and operation.

The internet added a new form of retail trade to the existing ones. It includes online stores, with the opening of which H&M received the possibility to offer considerably bigger quantity of goods and to provide consumers with the supportive information in wider scales. Thus, it helps the customers in making the decision on their purchases. Moreover, due to the use of information technologies, the company started creating an individual approach to each client proceeding from the history of a client’s visits to store and all his or her purchases made earlier. It is caused by fast and explosive increase of the role and the place of information in modern business; it turns from goods into the activities of the subjects using internet technologies for the achievement of the company’s purposes. At present, along with a continuous strengthening of specialized informational intermediaries’ role, there is an integration of the latter into the websites. This process unites the company and its consumers.