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Electronic commerce

Web Design & Development Guide

Electronic commerce

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Electronic commerce, commonly known as e-commerce or eCommerce, consists of the buying and selling of products or services over electronic systems such as the Internet and other computer networks. The amount of trade conducted electronically has grown dramatically since the wide introduction of the Internet. A wide variety of commerce is conducted in this way, including things such as 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. Modern electronic commerce typically uses the World Wide Web at at least some point in the transaction's lifecycle, although it can encompass a wide range of technologies such as e-mail as well.

A small percentage of electronic commerce is conducted entirely electronically for "virtual" items such as access to premium content on a website, but most electronic commerce eventually involves physical items and their transportation in at least some way.

History

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 refers to the technology/systems; the 'commerce' refers to be traditional business models. E-commerce is 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.

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, usually with secure connections (HTTPS, a special server protocol that 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, including backend systems, applications and middleware. Examples are broadband and fibre-optic networks, supply-chain management software, customer relationship management software, inventory control systems and financial accounting software.

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 emergence of e-commerce also significantly lowered barriers to entry in the selling of many types of goods; accordingly many small home-based proprietors are able to use the internet to sell goods. Often, small sellers use online auction sites such as eBay, or sell via large corporate websites like Amazon.com, in order to take advantage of the exposure and setup convenience of such sites.

Success factors

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. A company that wants to succeed will have to perform 2 things: Technical and organizational aspects and customer-oriented. Following factors will make business of companies succeed in e-commerce:

Technical and organizational aspects

  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 business.
  2. A good management team armed with 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.
  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. (Of course, customers can, and occasionally do, research a brick-and-mortar store online before visiting it, so this distinction does not hold water in every case.)

Customer experience

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 "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.
  11. Failure to expect the unexpected. Too often new businesses do not take into account the amount of time, money or resources needed to complete a project and often find themselves without the necessary components to become successful.

Product suitability

Certain products or services appear more suitable for online sales; others remain more suitable for offline sales. While credit cards are currently the most popular means of paying for online goods and services, alternative online payments will account for 26% of e-commerce volume by 2009 according to Celent.[1]

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. Other successful marketers such as use Drop shipping or Affiliate marketing techniques to facilitate transactions of tangible goods without maintaining real inventory. Examples include numerous sellers on eBay.

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 fulfill 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.

There are also many disadvantages of e-commerce, one of the main ones is fraud. This is where your details (name, bank card number, age, national insurance number) are entered into what look to be a safe site but really it is not. These details can then be used to steal money from you and can be used to buy things on line that you are completely unaware of until it is too late. If this information is leaked into the wrong hands. People are able to steal your identity, and commit more fraud crimes under your name. Finally there are many problems with e commerce some of which are:

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 will to construct a viable book e-tailing business model, but lack the capability to compete with Amazon. 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-tailer's failed to develop employee and management skills? These issues may call for thorough resource planning and employee training.

Products less suitable 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. Also, the recycling program Cheapcycle sells goods over the internet, but avoids the low value-to-weight ratio problem by creating different groups for various regions, so that shipping costs remain low.

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, mainly 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 e-Commerce web sites that frustrate online shoppers and drive them away.
  • Inconsistent return policies among e-tailers or difficulties in exchange/return.

References

  1. ^ Celent Report: According to figures published by Celent 25 May 2006.

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