itpro-track

E-commerce

2005-09-03T10:04:00.000-07:00

electronic commerce

Electronic commerce or e-commerce consists of the buying, selling, marketing, and servicing of products or services over computer networks. The information technology industry might see it as an electronic business application aimed at commercial transactions.
An alternative definition of e-commerce might view it as the conduct of business commercial communications and management through electronic methods, such as electronic data interchange and automated data-collection systems.
Electronic commerce may also involve the electronic transfer of information between businesses (EDI). 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 time. Originally, "electronic commerce" meant the facilitation of commercial transactions electronically, usually using technology like Electronic Data Interchange (EDI, introduced in the late 1970s) to send commercial documents like purchase orders or invoices electronically.
Later 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 pay services, like credit card payment authorizations.
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 (during the browser wars of this period). 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 , both started e-commerce subsidiaries through which consumers could order groceries online.
As of 2005 , e-commerce has become well-established in major cities across much of North America, Western Europe, and certain East Asian countries like South Korea. However, e-commerce is still emerging slowly in some industrialized countries like Australia , and is practically nonexistent in many Third World countries.

Key success factors in e-commerce
Several factors have a role in the success of any e-commerce venture. They may include:
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.
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.
Providing an attractive website. The tasteful use of colour, graphics, animation , photographs, fonts, and white-space percentage may aid success in this respect.
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.
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 .
Providing a sense of community. Chat rooms , discussion boards , soliciting customer input, loyalty schemes and affinity programs can help in this respect.
Providing reliability and security . Parallel servers , hardware redundancy , fail-safe technology , information encryption , and firewalls can enhance this requirement.
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.
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 .
Streamlining business processes , possibly through re-engineering and information technologies .
Letting customers help themselves. Provision of a self-serve site, easy to use without assistance, can help in this respect.
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.
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 bust.
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.)
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).
Setting up an organization of sufficient alertness and agility to respond quickly to any changes in the economic, social and physical environment .

E-commerce problems
Even if a provider of E-commerce goods and services rigorously follows these sixteen "key factors" to devise an exemplary e-commerce strategy, problems can still arise. Sources of such problems include:
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.
Failure to consider the competitive situation. One may have the capability to construct a viable book e-tailing business model , but lack the will to compete with Amazon.com .
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.
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.
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.
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.
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.
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 .
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.
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, 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 of e-commerce
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 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 .

B2B and B2C

2005-09-03T09:20:00.000-07:00

Business to Business (also known as “B2B: buying or trading)

E-commerce is when companies are buying from and selling to each other online. But there's more to it than just purchasing. It has evolved to encompass supply chain management as more companies outsource parts of their supply chain to their trading partners. At its most basic, a B2B exchange (also called a marketplace or hub) is a website where many companies can buy from and sell to each other using a common technology platform. Many exchanges also offer additional services, such as payment or logistics services that help members complete a transaction. Exchanges may also support community activities, like distributing industry news, sponsoring online discussions and providing research on customer demand or industry forecasts for components and raw materials. Business-to-business (B2B) online commerce is expected to be embraced by almost all businesses that conduct B2B commerce in the material (as opposed to cyberspace) world. Thus, great sums of gross merchandise will likely trade hands over the Internet. Already, companies such as Cisco Systems Dell Computer, and Intel conduct a majority of their B2B commerce over the Internet. Less tech-centric companies are following suit, with automakers, wholesalers, and diversified companies like General Electric launching major online business initiatives.
There's no doubt that the size of B2B e-commerce is going to be huge. Due to variations in the way things are counted and estimated, it's hard to nail a precise market size figure, but it will certainly be big business. The value of goods and services sold online among businesses could be anywhere from $1 trillion to $2 trillion by 2003, depending on the market research firm you quote. Even if B2B firms only capture a small percentage of this business, the potential is still great. Either way, the size of B2B e-commerce should dwarf the value of the products sold to consumers. The benefits of B2B commerce can save or make many companies money. Not that companies weren’t making profits prior to E-commerce, in many ways companies have benefited from this technology surge. So, why choose E-commerce as way for marketing and selling?
· Reduced purchasing costs One of the easiest ways that a company can cut costs is by remodeling the way it purchases raw goods. The National Association of Purchasing Managers says that the average manual purchase order costs a company $79. This is because locating goods needed and then filling out the necessary paper work is a labor-intensive process. Searching for products online requires much less time and electronically processing an order streamlines the ordering procedure.
· Increased market efficiency Using the Internet, companies can quickly and easily get price quotes from numerous suppliers. By increasing the number of sellers, buyers are more likely to get a better price, and vice versa. Just as eBay has created an efficient market for everything from Barbie dolls to old Atari games, B2B hosts make connections between buyers and sellers that may not have otherwise happened.
· Greater market intelligence Related to finding good prices, B2B hosts give producers a better insight into the demand levels in any given market. Spot price levels can quickly be determined in everything from paint pigments to plastic cups. This allows companies to make better decisions regarding what to and what not to produce.
· Decreased inventory levels Using B2B technologies, companies can better utilize their inventory and raw materials. The Internet allows even more time to be shaved off for companies that use "just in time" manufacturing techniques. In essence, it allows firms to use less working capital to do the same amount of work, freeing these funds to be invested elsewhere.
The overriding attraction that runs throughout online B2B is that it can make companies much more efficient. Increased efficiencies means reduced costs, which is a goal that interests every company, thus making the potential B2B e-commerce industry enormous
With the fast pace market of online buying, many companies have become more successful, and have upgraded to adding many more products to their services line. Or, have expanded to the level of B2C commerce. Which, can potentially bring in double the amount of profits, that a business would make with B2B sales alone.

Business to Consumer (B2C commerce)
While the term e-commerce refers to all online transactions, B2C stands for "business-to-consumer" and applies to any business or organization that sells its products or services to consumers over the Internet for their own use. When most people think of B2C e-commerce, they think of Amazon.com, the online bookseller that launched its site in 1995 and quickly took on the nation's major retailers. However, in addition to online retailers, B2C has grown to include services such as online banking, travel services, online auctions, health information and real estate sites. The difference between B2C and B2B e-commerce?For one thing, the customers are different — B2B is strictly business to business, customers are other companies; while B2C customers are individuals. Overall, B2B transactions are more complex and have higher security needs.

What’s the big fuss over B2C E-commerce? After all consumers are just people.
In the late 90s, dotcoms like Amazon.com and eBay — which were quickly gaining in size and market capitalization — posed a threat to traditional brick and mortar businesses. In many ways, these dotcoms seemed to be rewriting the rules of business — they had the customers without the expenses of maintaining physical stores, little inventory, unlimited access to capital and little concern about actual earnings. The idea was to get big fast and worry about profits later. By late 1999, Amazon had a market capitalization of close to $25 billion, eclipsing some of the largest and most established companies in America. Since then, retail giants such as Kmart and Wal-mart were hoping to cash in on the dotcom frenzy, as well as other small businesses who were in the market against the retail giants, but weren’t in a well off position. Many never made it to the initial public offering after the Nasdaq started to tumble in the spring of 2000. Almost as quickly as the dotcom phenomenon took over, the hype over B2C e-commerce dissipated along with the crumbling Nasdaq. Funding for Internet ventures started to dry up and major companies started to reel in their spinoffs, bringing e-commerce initiatives back under the corporate fold.
Due to the significant fall of B2C e-commerce, the idea itself may be diving nose first, but it isn't dead. In fact, the North American online retail market is expected to grow 45 percent to $65 billion, according to a joint study conducted by the industry group Shop.org and the Boston Consulting Group. Forrester Research predicts that B2C e-commerce in the United States alone will grow from $45.8 billion in 2002 to $184.5 billion in 2004.
What are the primary concerns of B2C consumers and the companies who are selling?
Getting customers to buy things: A company’s e-commerce site cannot live on traffic alone. Getting consumers visit the site regularly is only half the battle. Whether they buy something, is part of the determining factor. The so-called conversion rate for B2C e-commerce sites is still fairly low. (Boston-based Yankee Group said in November 2002 that the average rate was 10 percent.) Some ways to boost your conversion rate include improving navigation, simplifying checkout process (such as one-step checkout and easily replaced passwords, and security options discussed later.), and sending out e-mails with special offers.
Secondly, building customer loyalty: With so many sites out there, how can you build a strong relationship with customers, that will continue to keep them returnin, to buy your goods, and patron your services?
Focus on personalization: A wide array of software packages are available to help e-commerce sites create unique boutiques that target specific customers. For example, American Airlines has personalized its website so that business fliers view it as a business airline and leisure travelers see it as a vacation site. Amazon, which built its own personalization and customer relationship management (CRM) systems, is well known for its ability to recognize customers' individual preferences.

Create an easy-to-use customer service application. Providing just an e-mail address can be frustrating to customers with questions. Live chat or, at the very least, a phone number will help.

Focus on making your site easy to use.

Thirdly, fulfillment: E-commerce has increased the focus on customer satisfaction and delivery fulfillment. One cautionary tale is Toys "R" Us' holiday debacle in 1999, when fulfillment problems caused some Christmas orders to de delivered late. Since then, companies have spent billions to improve their logistical systems in order to guarantee on-time delivery.
Providing instant gratification for customers still isn't easy, but successful B2C e-commerce operations are finding that fulfillment headaches can be eased with increased focus and investment in supply chain and logistical technologies.