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E-commerce

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Electronic commerce (also referred to as EC, e-commerce or ecommerce) consists primarily of the distributing, buying, selling, marketing, and servicing of products or services over electronic systems such as the Internet and other computer networks. The information technology industry might see it as an electronic business application aimed at commercial transactions. It can involve electronic funds transfer, supply chain management, e-marketing, online marketing, online transaction processing, electronic data interchange (EDI), automated inventory management systems, and automated data collection systems. It typically uses electronic communications technology such as the Internet, extranets, e-mail, e-books, databases, catalogues and mobile phones.

According to Forrester Research (as cited in Kessler, 2003), electronic commerce generated sales worth US $12.2 billion in 2003.

Historical development

The meaning of the term "electronic commerce" has changed over the last 30 years. Originally, "electronic commerce" meant the facilitation of commercial transactions electronically, usually using technology like Electronic Data Interchange (EDI) and Electronic Funds Transfer (EFT), where both were introduced in the late 1970s, for example, to send commercial documents like purchase orders or invoices electronically.

The 'electronic' or 'e' in e-commerce or e-business refers to the technology/systems; the 'commerce' refers to be traditional business models. e-commerce is defined as the complete set of processes that support commercial/business activities on a network. In the 1970s and 1980s, this would also have involved information analysis. The growth and acceptance of credit cards, Automated Teller Machines (ATM) and telephone banking in the 1980s were also forms of e-commerce. However, from the 1990s onwards, this would include enterprise resource planning systems (ERP), data mining and data warehousing.

The individual who made the biggest single contribution to the development of e-commerce was IBM chief Lou Gerstner, who received an honorary knighthood from the Queen for services to e-commerce and education in 2001, two years ahead of Tim Berners-Lee. That IBM is a giant today in e-commerce, and that no-one from either Amazon or eBay has received a similar award, is proof of Gerstner's contribution.

In the "dot.com" era, it came to include activities more precisely termed "Web commerce" -- the purchase of goods and services over the World Wide Web via secure servers (note HTTPS, a special server protocol which encrypts confidential ordering data for customer protection) with e-shopping carts and with electronic payment services, like credit card payment authorizations.

Today, it encompasses a very wide range of business activities and processes, from e-banking to offshore manufacturing to e-logistics. The ever growing dependence of modern industries on electronically enabled business processes gave impetus to the growth and development of supporting systems. This includes backend systems, applications and middleware. Examples are broadband and fiber-optic networks, supply-chain modules, material planning modules, customer relationship modules, inventory control systems and financial accounting/corporate finance modules.

When the Web first became well-known among the general public in 1994, many journalists and pundits forecast that e-commerce would soon become a major economic sector. However, it took about four years for security protocols (like HTTPS) to become sufficiently developed and widely deployed. Subsequently, between 1998 and 2000, a substantial number of businesses in the United States and Western Europe developed rudimentary Web sites.

Although a large number of "pure e-commerce" companies disappeared during the dot-com collapse in 2000 and 2001, many "brick-and-mortar" retailers recognized that such companies had identified valuable niche markets and began to add e-commerce capabilities to their Web sites. For example, after the collapse of online grocer Webvan, two traditional supermarket chains, Albertsons and Safeway, both started e-commerce subsidiaries through which consumers could order groceries online.

The evolution of e-commerce in the early 2000s onwards saw multinational (MNCs) or transnational (TNCs) companies establishing regional shared services centers, regional data centers and regional call centers. Today, this is not only a crucial part of a company's long-term corporate strategy in cost containment, but also in maintaining and winning market share in a borderless, global marketplace.

Success factors in e-commerce

Technical and organizational aspects

In many cases, an e-commerce company will survive not only based on its product, but by having a competent management team, good post-sales services, well-organized business structure, network infrastructure and a secured, well-designed website. Such factors include:

  1. Sufficient work done in market research and analysis. e-commerce is not exempt from good business planning and the fundamental laws of supply and demand. Business failure is as much a reality in e-commerce as in any other form of businesses.
  2. A good management team armed with good and sound information technology strategy. A company's IT strategy should be a part of the business re-design process.
  3. Providing an easy and secured way for customers to effect transactions. Credit cards are the most popular means of sending payments on the internet, accounting for 90% of online purchases. In the past, card numbers were transferred securely between the customer and merchant through independent payment gateways. Such independent payment gateways are still used by most small and home businesses. Most merchants today process credit card transactions on site through arrangements made with commercial banks or credit cards companies.
  4. Providing reliability and security. Parallel servers, hardware redundancy, fail-safe technology, information encryption, and firewalls can enhance this requirement.
  5. Providing a 360-degree view of the customer relationship, defined as ensuring that all employees, suppliers, and partners have a complete view, and the same view, of the customer. However, customers may not appreciate the big brother experience.
  6. Constructing a commercially sound business model. If this key success factor had appeared in textbooks in 2000, many of the dot-coms might not have gone into bankruptcy.
  7. Engineering an electronic value chain in which one focuses on a "limited" number of core competencies -- the opposite of a one-stop shop. (Electronic stores can appear either specialist or generalist if properly programmed.)
  8. Operating on or near the cutting edge of technology and staying there as technology changes (but remembering that the fundamentals of commerce remain indifferent to technology).
  9. Setting up an organization of sufficient alertness and agility to respond quickly to any changes in the economic, social and physical environment.
  10. Providing an attractive website. The tasteful use of colour, graphics, animation, photographs, fonts, and white-space percentage may aid success in this respect.
  11. Streamlining business processes, possibly through re-engineering and information technologies.
  12. Providing complete understanding of the products or services offered, which not only includes complete product information, but also sound advisors and selectors.

Naturally, the e-commerce vendor must also perform such mundane tasks as being truthful about its product and its availability, shipping reliably, and handling complaints promptly and effectively. A unique property of the Internet environment is that individual customers have access to far more information about the seller than they would find in a brick-and-mortar situation.

Customer-Oriented

A successful e-commerce organization must also provide an enjoyable and rewarding experience to its customers. Many factors go into making this possible. Such factors include:

  1. Providing value to customers. Vendors can achieve this by offering a product or product-line that attracts potential customers at a competitive price, as in non-electronic commerce.
  2. Providing service and performance. Offering a responsive, user-friendly purchasing experience, just like a flesh-and-blood retailer, may go some way to achieving these goals.
  3. Providing an incentive for customers to buy and to return. Sales promotions to this end can involve coupons, special offers, and discounts. Cross-linked websites and advertising affiliate programs can also help.
  4. Providing personal attention. Personalized web sites, purchase suggestions, and personalized special offers may go some of the way to substituting for the face-to-face human interaction found at a traditional point of sale.
  5. Providing a sense of community. Chat rooms, discussion boards, soliciting customer input and loyalty programs (sometimes called affinity programs) can help in this respect.
  6. Owning the customer's total experience. E-tailers foster this by treating any contacts with a customer as part of a total experience, an experience that becomes synonymous with the brand.
  7. Letting customers help themselves. Provision of a self-serve site, easy to use without assistance, can help in this respect. This implies that all product information is available, cross-sell information, advise for product alternatives, and supplies & accessory selectors.
  8. Helping customers do their job of consuming. E-tailers and online shopping directories can provide such help through ample comparative information and good search facilities. Provision of component information and safety-and-health comments may assist e-tailers to define the customers' job.

Problems

Even if a provider of E-commerce goods and services rigorously follows these seventeen "key factors" to devise an exemplary e-commerce strategy, problems can still arise. Sources of such problems include:

  1. Failure to understand customers, why they buy and how they buy. Even a product with a sound value proposition can fail if producers and retailers do not understand customer habits, expectations, and motivations. E-commerce could potentially mitigate this potential problem with proactive and focused marketing research, just as traditional retailers may do.
  2. Failure to consider the competitive situation. One may have the will to construct a viable book e-tailing business model, but lack the capability to compete with Amazon.com.
  3. Inability to predict environmental reaction. What will competitors do? Will they introduce competitive brands or competitive web sites? Will they supplement their service offerings? Will they try to sabotage a competitor's site? Will price wars break out? What will the government do? Research into competitors, industries and markets may mitigate some consequences here, just as in non-electronic commerce.
  4. Over-estimation of resource competence. Can staff, hardware, software, and processes handle the proposed strategy? Have e-tailers failed to develop employee and management skills? These issues may call for thorough resource planning and employee training.
  5. Failure to coordinate. If existing reporting and control relationships do not suffice, one can move towards a flat, accountable, and flexible organizational structure, which may or may not aid coordination.
  6. Failure to obtain senior management commitment. This often results in a failure to gain sufficient corporate resources to accomplish a task. It may help to get top management involved right from the start.
  7. Failure to obtain employee commitment. If planners do not explain their strategy well to employees, or fail to give employees the whole picture, then training and setting up incentives for workers to embrace the strategy may assist.
  8. Under-estimation of time requirements. Setting up an e-commerce venture can take considerable time and money, and failure to understand the timing and sequencing of tasks can lead to significant cost overruns. Basic project planning, critical path, critical chain, or PERT analysis may mitigate such failings. Profitability may have to wait for the achievement of market share.
  9. Failure to follow a plan. Poor follow-through after the initial planning, and insufficient tracking of progress against a plan can result in problems. One may mitigate such problems with standard tools: benchmarking, milestones, variance tracking, and penalties and rewards for variances.
  10. Becoming the victim of organized crime. Many syndicates have caught on to the potential of the Internet as a new revenue stream. Two main methods are as follows: (1) Using identity theft techniques like phishing to order expensive goods and bill them to some innocent person, then liquidating the goods for quick cash; (2) Extortion by using a network of compromised "zombie" computers to engage in distributed denial of service attacks against the target Web site until it starts paying protection money.

Product suitability

Certain products/services appear more suitable for online sales; others remain more suitable for offline sales.

Many successful purely virtual companies deal with digital products, including information storage, retrieval, and modification, music, movies, office supplies, education, communication, software, photography, and financial transactions. Examples of this type of company include: Google, eBay and Paypal.

Virtual marketers can sell some non-digital products and services successfully. Such products generally have a high value-to-weight ratio, they may involve embarrassing purchases, they may typically go to people in remote locations, and they may have shut-ins as their typical purchasers. Items which can fit through a standard letterbox - such as music CDs, DVDs and books - are particularly suitable for a virtual marketer, and indeed Amazon.com, one of the few enduring dot-com companies, has historically concentrated on this field.

Products such as spare parts, both for consumer items like washing machines and for industrial equipment like centrifugal pumps, also seem good candidates for selling online. Retailers often need to order spare parts specially, since they typically do not stock them at consumer outlets -- in such cases, e-commerce solutions in spares do not compete with retail stores, only with other ordering systems. A factor for success in this niche can consist of providing customers with exact, reliable information about which part number their particular version of a product needs, for example by providing parts lists keyed by serial number.

Purchases of pornography and of other sex-related products and services fulfil the requirements of both virtuality (or if non-virtual, generally high-value) and potential embarrassment; unsurprisingly, provision of such services has become the most profitable segment of e-commerce.

Products unsuitable for e-commerce include products that have a low value-to-weight ratio, products that have a smell, taste, or touch component, products that need trial fittings - most notably clothing - and products where colour integrity appears important. Nonetheless, Tesco.com has had success delivering groceries in the UK, albeit that many of its goods are of a generic quality, and clothing sold through the internet is big business in the U.S.

Acceptance

Consumers have accepted the e-commerce business model less readily than its proponents originally expected. Even in product categories suitable for e-commerce, electronic shopping has developed only slowly. Several reasons might account for the slow uptake, including:

  • Concerns about security. Many people will not use credit cards over the Internet due to concerns about theft and credit card fraud.
  • Lack of instant gratification with most e-purchases (non-digital purchases). Much of a consumer's reward for purchasing a product lies in the instant gratification of using and displaying that product. This reward does not exist when one's purchase does not arrive for days or weeks.
  • The problem of access to web commerce, particularly for poor households and for developing countries. Low penetration rates of Internet access in some sectors greatly reduces the potential for e-commerce.
  • The social aspect of shopping. Some people enjoy talking to sales staff, to other shoppers, or to their cohorts: this social reward side of retail therapy does not exist to the same extent in online shopping.
  • Poorly designed, bug-infested eCommerce web sites that frustrate online shoppers and drive them away.
  • Inconsistent return policies among e-tailers or difficulties in exchange/return.

Getting your business on the Web

A trend for businesses in the 21st century is to offer their products and services electronically, a practice known as electronic commerce, commonly referred to as "e-commerce". Major companies, such as Nike, Adidas, Future Shop, Sears, and other major retailers all offer their products online. Their mindset is that this offers quick, easy, and efficient service. There are advantages to engaging in e-commerce. First, providing fast and efficient service leads to a competitive advantage, and presents the opportunity to reach out to a larger target market. With the expansion of the Internet and a greater thirst for information and knowledge, global competition is becoming fierce, so gaining a competitive advantage is vital to the global and domestic strategy of a firm.

There are three steps to analyze when looking at the creation of an online business: Consideration, Implementation, and Finalization.

Consideration

How does a business know whether they should engage in such a practice? Despite the obvious advantages to e-commerce, it does not always meet the long term needs of a company. If the market for the product is quite small, then there is no need to engage in e-commerce as it will be less difficult to gain competitive advantage and would only result in unnecessary costs and expenses. Secondly, if the company wishes to remain domestic and not expand its services, then a company would be better suited to follow the normal processes of adversiting than participating in e-commerce. Finally, a company must consider whether the business would even succeed or thrive in the e-commerce environment. For example, selling food online would not be a viable venture, as the ultimate costs (wastage, storage, transportation) would outweigh the benefits.

However, if a company believes that their product has great market potential outside of their domestic realm, and feel that they can participate in e-commerce, then some time must be taken to lay down the floor plan for the business. Some aspects to consider are:

  • What is the idea for the business?
  • Is it a product or service?
  • What is the name of it?
  • Will you emphasise price, quality, service, or another point?
  • What is the target market?

Implementation

The key to successfully starting and creating an online business is choosing the right Web host. Try to find one that offers guarantees, is flexible, responds to your concerns, and quite simply is one that offers the services that you want and need.

Once you have found the right Web host for you and created an account, the next step is start building your site. This is going to be the bread and butter of your business. Having an attractive yet simple site will have a great impact. Ensure that it projects the right image and is directed to the right target market for your product. It should be easy to navigate and have a solid search option. Also clarify what sorts of policies you will implement, such as return policies, acceptance or rejection of credit cards, check-out, and any other payment options such as cheques or money orders. Finding the right merchant account to help you accept credit cards is important.

If you are selling products, there are many types of software out there to help you create an effective and efficient ordering system. Look at the features that you will need for your site and compare them to the software that is available. Some may be expensive and others will be free.

Finalization

Now that you have created the website and are ready to begin, the next important step is to market your online business. The options are numerous and can include:

  • Join a search engine and pay a fee for placement
  • Contract with affiliate sites and programs
  • Advertise
  • Virally market
  • Use promotions

A key step is developing some sort of PR strategy. Your customers are the most important aspect of your business. Make them happy. This can include offering links on your site to answer Frequently Asked Questions (FAQs), shipping quickly, designing a system for easy returns, as well as any other type of cusomter service.

It is also important to constantly change and maintain the freshness of your site. This includes altering colors and creating new displays. Another noteworthy option is to include some sort of statistical counter so that you find out where your customers are logging in from and what they do on your site. Test any advertisements that you create to see how effective they are.

Literature

  • Stefan Bach und Georg Erber, Electronic Commerce: A Need for Regulation? in: Freer Trade in the Next Decade, Issues in the Millennium Round in the World Trade Organisation, eds. K. G. Deutsch und B. Speyer, Routledge, 2001, 125-137. [1] ISBN 0-415-23815-3
  • Georg Erber, Peter Klaus und Ulrich Voigt, E-Commerce-induced Change in Logistics and Transport Systems, in: Economic Bulletin 10, Vol. 38, 2001, p. 313-320.
  • Carl Shapiro and Hal R. Varian, "Information Rules: A Strategic Guide to the Network Economy," Harvard Business School Press, 1999, ISBN 0-87584-863-X
  • Edited by: Don Tapscott, Alex Lowy and David Ticoll, Associate Editor: Natalie Klym, "Blueprint to the Digital Economy: Creating Wealth in the Era of E-Business," McGraw-Hill, 1998, ISBN 0-07-063349-5
  • Nabil R. Adam, Oktay Dogramaci, Aryya Gangopadhyay and Yelena Yesha, "Electronic Commerce: Technical, Business, and Legal Issues," Prentice Hall PTR, 1999, ISBN 0-13-949082-5
  • Larry P. English, "Improving Data Warehouse and Business Information Quality: Methods for Reducing Costs and Increasing Profits," John Wiley & Sons, Inc., 1999, ISBN 0-471-25383-9

Suppliers offering services to electronic commerce practitioners

Financial

Software

Entities using electronic commerce

See also

References

  • Chaudhury, Abijit (2002). e-Business and e-Commerce Infrastructure. McGraw-Hill. ISBN 0-07-247875-6. {{cite book}}: Unknown parameter |coauthors= ignored (|author= suggested) (help)
  • Bracken, Ben (2006). The eCommerce Solution Guide - Easy UK eCommerce on a Budget. Retrieved July 30, 2006
  • Kessler, M. (2003). More shoppers proceed to checkout online. Retrieved January 13, 2004
  • Nissanoff, Daniel (2006). FutureShop: How the New Auction Culture Will Revolutionize the Way We Buy, Sell and Get the Things We Really Want (Hardcover ed.). The Penguin Press. pp. 246 pages. ISBN 1-59420-077-7.
  • Seybold, Pat (2001). Customers.com. Crown Business Books (Random House). ISBN 0-609-60772-3.
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