4.8. e-Commerce

4.8. E-commerce

E-commerce, in the popular sense, can be defined as: the use of the Internet and the Web to conduct business transactions. A more technical definition would be: e-commerce involves digitally enabled commercial transactions between and among organizations and individuals. E-commerce differs from e-business in that no commercial transaction, an exchange of value across organizational or individual boundaries, takes place in e-business. E-business is the digital enablement of transactions and processes within a firm and therefore does not include any exchange in value. E-commerce and e-business intersect at the business firm boundary at the point where internal business systems link up with suppliers. For instance, e-business turns into e-commerce when an exchange of value occurs across firm boundaries.

Features or E-Commerce

The unique features of e-commerce technology include:

• Ubiquity: It is available just about everywhere and at all times.

• Global Reach: the potential market size is roughly equal to the size of the online population of the world.

• Universal standards: The technical standards of the Internet, and therefore of conducting e-commerce, are shared by all of the nations in the world.

• Richness: Information that is complex and content rich can be delivered without sacrificing reach.

• Interactivity: E-commerce technologies allow two-way communication between the merchant and the consumer.

• Information density: The total amount and quality of information available to all market participants is vastly increased and is cheaper to deliver.

• Personalization/Customization: E-commerce technologies enable merchants to target their marketing messages to a person’s name, interests, and past purchases. They allow a merchant to change the product or service to suit the purchasing behaviour and preferences of a consumer.

• Social technology: User content generation and social networking technologies

The five primary revenue models used by e-commerce firms

The five primary revenue models used by e-commerce firms are:

• the advertising revenue model
• the subscription revenue model
• the transaction fee revenue model
• the sale revenue model
• the affiliate revenue model

The advertising model derives its profit by displaying paid advertisements on a Web site. The goal is to convince advertisers that the site has the ability to attract a sizeable viewership, or a viewership that meets a marketing niche sought by the advertiser. Firms that use the subscription model offer users access to some or all of their content or services for a subscription fee. Firms that use the transaction fee model derive profit from enabling or executing transactions. For instance, transaction fees are paid to eBay when a seller is successful in auctioning off a product, and E*Trade receives a transaction fee when it executes a stock transaction for a customer. In the sales revenue model, companies draw profit directly from the sale of goods, information, or services to consumers. In the affiliate model, sites receive referral fees or a percentage of the revenue from any sales that result from steering business to the affiliate.

Task 3: What are some of the specific ways that a company can obtain a competitive advantage from using a global e-commerce platform? Watch the two videos on Alibaba

Task 4: Do you think JD.com’s new aerial delivery programme (see article below) will have a revolutionary effect (change) on the retail industry in China?

Task 5: Identify the effect of globalization on the Singles’ Day phenomenon

The effects of changing technology and e-commerce on the marketing mix

E-Marketing Mix

Traditionally the marketing mix is co-ordinated so efficient product, price, promotion and place strategies are developed for products purchased over the counter. The internet is changing the way we sell our products and services. That’s a fact. Consumers now use the internet to research and purchase products/services online. Organisations now need online strategies to attract and retain customers. The e-marketing mix considers the elements of presenting the marketing mix online.

E-product strategies

We walk into a shop and see a product we like, we can assess it, touch it. Online, this immediate tangibility disappears. But, is that a disadvantage? Within the UK e-commerce sales are increasing at extremely high rates. Why? What does buying products online offer over one to one sales? Firstly, there are clear online facts about the product you are purchasing. The buyer knows immediately about product features, the facts, not a sales person’s assumptions. www.comet.co.uk a UK electrical store offers clear information on products and their specification, consumers know what they get if not there is a customer service number where they can find out more.

The buying process is also customised for returning visitors, making repeat purchases easier. Organisations can also offer immediately ancillary products along with the main purchase. For example, the chance to buy extra printer cartridges along with your purchase of your printer online. The product can also be customised to consumers needs. www.nike.com offer customised trainers to users online. Users can design and see their trainers online before they order!

E-price strategies

As mentioned in our marketing mix section, pricing is always difficult to do and must take into account many considerations. Traditionally pricing was about finding about your costs, discovering how much consumers are willing to pay, taking account competition pricing then setting your price. The internet has made pricing very competitive. Many costs i.e. store costs, staff cost have disappeared for complete online stores, placing price pressures on traditional retailers.

The internet gives consumers the power to shop around for the best deal at a click of a button. Website such www.kelkoo.com compares products from different websites informing consumers of where the best deal is. Such easy access to information helps to maintain prices within the online world.

The growth of online auctions also helps consumers to dictate price. The online auction company www.ebay.com has grown in popularity with thousands of buyers and seller bidding daily.

E-pricing can also easily reward loyal customers. Technology allows repeat visitors to be tracked, easily allowing loyalty incentives to be targeted towards them. Payment is also easy, Paypal or online credit cards use allows for easy payments. However, the downside to this is internet fraud, which is growing rapidly around the world.

E-place strategies

One of the biggest changes to the marketing mix is online purchasing. Consumers can purchase direct from manufacturers cutting out retailers totally. The challenge for online retailers is to ensure that the product is delivered to the consumer within a reasonable time. Location is important within our place strategy. Online location can refer to where links are placed on other websites. Placing a link on www.google.com home page would generate high consumer traffic for you. Knowing your customer and knowing where they visit should help you understand where to place your online links and advertisements.

E-promotion strategies

Promoting products and service online is concerned with a number of issues. Having a recognisable domain name is first stage towards e-promotion. Organisation such as egg.com has successfully positioned the brand on the online world as an online bank.

Most organisations today have some form of webpage used in most if not all advertisements. Placing banner advertisements on other WebPages is a common form of e-promotion. Banner ads must be placed where potential customers browse. Web public relations (WPR) are another approach to promoting online. News worthy stories based on product or service launches can be placed on the companies webpage, or WPR articles sent to review sites for consumers to read. Hopefully this form of online promotion will pull the consumer in. Direct email is a popular and common form of e-promotions, although slowly becoming the most hated my many consumers. Organisations can send e-leaflets to hundreds and thousands of respondents, hoping a small percentage will reply. The problem is that for every 100 emails sent the response rate will be 1-2!. Direct emailing is also known as SPAM which stands for Sending Persistent Annoying eMail. (SPAM). To summaries e-promotion includes:

· Banner promotions

· Web public relations (WPR)

· E-leaflets

· Having a domain name.

Business-to-business (B2B)

On the Internet, B2B (business-to-business), also known as e-biz, is the exchange of products, services, or information between businesses rather than between businesses and consumers. Although early interest centered on the growth of retailing on the Internet (sometimes called e-tailing), forecasts are that B2B revenue will far exceed business-to-consumers (B2C) revenue in the near future. According to studies published in early 2000, the money volume of B2B exceeds that of e-tailing by 10 to 1. Over the next five years, B2B is expected to have a compound annual growth of 41%. The Gartner Group estimates B2B revenue worldwide to be $7.29 trillion dollars by 2004. In early 2000, the volume of investment in B2B by venture capitalists was reported to be accelerating sharply although profitable B2B sites were not yet easy to find.

B2B Web sites can be sorted into:

• Company Web sites, since the target audience for many company Web sites is other companies and their employees. Company sites can be thought of as round-the-clock mini-trade exhibits. Sometimes a company Web site serves as the entrance to an exclusive extranet available only to customers or registered site users. Some company Web sites sell directly from the site, effectively e-tailing to other businesses.
• Product supply and procurement exchanges, where a company purchasing agent can shop for supplies from vendors, request proposals, and, in some cases, bid to make a purchase at a desired price. Sometimes referred to as e-procurement sites, some serve a range of industries and others focus on a niche market.
• Specialized or vertical industry portals which provide a "subWeb" of information, product listings, discussion groups, and other features. These vertical portal sites have a broader purpose than the procurement sites (although they may also support buying and selling).
• Brokering sites that act as an intermediary between someone wanting a product or service and potential providers. Equipment leasing is an example.
• Information sites (sometimes known as infomediary), which provide information about a particular industry for its companies and their employees. These include specialized search sites and trade and industry standards organization sites.

Many B2B sites may seem to fall into more than one of these groups. Models for B2B sites are still evolving.

Another type of B2B enterprise is software for building B2B Web sites, including site building tools and templates, database, and methodologies as well as transaction software.

B2B is e-commerce between businesses. An earlier and much more limited kind of online B2B prior to the Internet was Electronic Data Interchange (EDI), which is still widely used.

B2B e-commerce promises many strategic benefits for participating firms, both the buyers and the sellers including:

· Lower administrative costs

· Lower search costs for buyers

· Reduced inventory costs due to increased competition among the suppliers (which increases price transparency) and reducing inventory to a bare minimum

· Lower transaction costs due to the elimination of paperwork and the partial automation of the procurement process

· Increased production flexibility by ensuring delivery of parts “just-in-time”

· Improved quality of products due to increased cooperation among buyers and sellers, reducing quality issues

· Decreased product cycle time due to the sharing of designs and production schedules with suppliers

· Increased opportunities for collaborating with suppliers and distributors

· Increased price transparency

Business-to-Consumer (B2C)

Business-to-customer marketing refers to the tactics and best practices used to promote products and services among consumers. B2C marketing differs from B2B marketing in a number of key ways, one being that it often depends on campaigns’ abilities to invoke emotional responses, rather than solely demonstrating value.

Targeting consumers across digital channels

Like most forms of marketing, technology has greatly expanded the number of channels B2C marketers must use in their campaigns. However, it has also provided companies with the ability to use different techniques across multiple channels based on which demographics are most likely to access them.

The most popular or effective channels for a business will differ according to its unique demographic, but the web is becoming universal in consumers’ shopping research. According to a report from Pew, 33 percent of adults aged 18 to 39 turn to the internet first when looking for information on local businesses, while 26 percent of older adults rely primarily on the web for researching nearby companies.

Additionally, the web is the starting point for research in a number of B2C businesses, such as restaurants and bars, by adults of all age groups.

B2C content marketing

The web has provided a critical medium for the delivery of relevant content and information designed to educate prospects and generate demand, rather than simply promote brands. Branded content is increasingly part of consumers’ shopping process; more than one-quarter of all consumers (26 percent) report going to business websites for information prior to making a purchase.

In terms of content marketing, B2C marketers have found success with blogs written specifically to appeal to consumers who may be interested in unique products. Developing personas that can appeal to subsets of prospects and writing content from these perspectives to engage a wide array of audience members is gaining traction as a B2C content marketing practice.

A report from Technorati found that nearly 80 percent of entrepreneurs who maintain blogs said that their content has improved business. Meanwhile, corporate bloggers are finding similar benefits, with nearly 70 percent expressing their companies have greater visibility as a direct result of blog marketing.

The value of B2C SEO and social marketing

As consumers search for product names or look for content related to their intended purchases, a website with strong search standing and social presence will be visited more frequently. B2C marketers must understand the value of well developed keyword strategies, and bear in mind that most consumers search for four-word phrases.

IPerceptions’ Q2 2011 Retail/E-Commerce Industry Report said 21 percent of consumers land on ecommerce websites from search engines. Moreover, the average consumer visits more than 10 resources on the web before they finalize a purchase decision, varying from sites discovered on search to social forums. Search and social marketing together boost click-through rates among consumers by 94 percent on average.

The market entry strategy that has proven to be the most lucrative is the brand extender. This mixed clicks-and-bricks strategy integrates online marketing closely with offline physical stores. It uses the Web as an extension to already existing order processing and fulfillment, and marketing and branding campaigns. These firms have been the most successful because they already possess the financial depth, marketing and sales resources, loyal customers, strong brands, and production and/or fulfillment facilities needed to meet customer demands.

Task 8: Identify both the changes in the Chinese market which are driving online presence in the retail industry, but also the strategies undertaken by merchants

Consumer 2 Consumer (C2C)

C2C, or customer-to-customer, or consumer-to-consumer, is a business model that facilitates the transaction of products or services between customers. It is one of four categories of e-commerce, along with B2B (business to business), C2B (customer to business) and B2C (business to customer).

An example of C2C would be the classifieds section of a newspaper, or an auction. In both of these cases, a customer, not a business, sells goods or services to another customer. The goal of a C2C is to enable this relationship, helping buyers and sellers locate each other. Customers can benefit from the competition for products and easily find products that may otherwise be difficult to locate.

Thanks to the Internet, intermediary companies have fostered more C2C interaction. Some examples of C2C include eBay, an online auction site, and Amazon, which acts as both a B2C and a C2C marketplace. EBay has been successful since its launch in 1995, and it has always been a C2C. Anybody can sign up and begin selling or buying, giving an early voice to consumers in the e-commerce revolution. Sites like eBay and Amazon use PayPal to mitigate any payment processing risks.

Craigslist is another well-known site where people can buy and sell goods, as well as trade services. With more than 20 billion page views per month, this classifieds site creates a community feel in the C2C business model. Craigslist does not facilitate the payment or processing of money, however — it simply facilitates the relationships, whether between a landlord and potential renters, or someone seeking specific services and the expert who can provide them.

C2C has a number of benefits for users. There are minimal costs involved with the lack of retailers and wholesalers, keeping the margins higher for sellers and prices lower for buyers. There is also the convenience factor — instead of trying to sell items in person at a brick-and-mortar store, consumers can simply list their products online and wait for the buyers to come to them. Buyers don't need to drive around and search through stores for an item they want — they just have to search for it on a C2C site.

Most C2C sites make their money from fees or commissions charged to sellers for listing items for sale. C2C sites act simply as intermediaries, matching buyers to sellers, and they have little control over the quality of the products being sold. Companies often try to prevent the sale of illegal goods or services, like pirated CDs or drugs.

But C2C is not without its problems. Credit card payments can be difficult, as the platforms are not necessarily secure and able to process such payments. There is a lack of quality control — since the sellers are consumers themselves, there is little recourse for poorly made or misrepresented products. On the flip side, because the buyers are consumers themselves, the payment guarantees can be hard to enforce.

Source - http://www.businessnewsdaily.com/5084-what-is-c2c.html

The costs and benefits of e-commerce to firms and consumers

Electronic commerce, commonly known as e-commerce or e-Commerce, consists of the buying and selling of products or services over electronic systems such as the Internet and other computer networks. For many businesses, e-commerce is becoming the only option, as companies become increasingly interested in expanding their online operations. Thus we can observe benefits both for consumers and for your business.

For customers

Benefits

· Access to a truly global marketplace with an availability of sources from around the world.

· Access to products, services and information at any time of day or night.

· The convenience and speed of shopping without leaving home.

· Easier price comparisons and often discounted prices for goods purchased directly on-line.

· An interactive opportunity to learn more about products and how to use them.

Concerns

1: Confidence in the Source

The growth and appeal of the Internet has evolved as a result of the ease with which individuals and companies have been able to enter the electronic marketplace. However, because virtually anyone can create an Internet site and offer products and services, consumers shopping on-line may find suppliers who are well-known, along with unfamiliar ones from countries around the world.

Consumers should only complete transactions or reveal personal information to sources they feel comfortable exchanging information with. Consumers should also be aware that business practices in foreign countries may not be similar to those in the United States.

2: Security of Information

How safe is it to provide credit card information over the Internet? Will someone else be able to steal and use credit card information provided? Is ordering through the Internet as safe as ordering by phone or mail?

Most Internet purchases are currently made by entering credit card and delivery information on a computerized form and transmitting it electronically to the retailer. Even though consumers are accustomed to giving credit card information over the telephone, many are reluctant to give it on-line for fear that it will be stolen or misused. This reluctance is often cited as the largest barrier to the growth of retail sales on the Internet.

Internet retailers, however, are using technology and standards for safeguarding sensitive information that consumers provide as part of an electronic transaction. Before completing on-line transactions, consumers should take time to become familiar with methods the retailer uses for protecting their information.

To reassure potential customers, many on-line retailers offer descriptions of the technology used to protect credit card transactions. As with traditional transactions, there is always some risk involved with exchanging personal data over the Internet. However, as technology develops and more people shop on-line and have trouble-free experiences, concerns about security should lessen.

3: Privacy

Consumers are also concerned about who is going to see the information that is provided and about the use of the information once the transaction is completed. Will others have access to their personal information? Will lists of personal information be sold to providers of similar or related products? The privacy rights of individuals must be balanced with the benefits derived from the free flow of information. But, a certain amount of personal privacy must be assured to increase consumer confidence in the use of the system.

In order to empower consumers to have control of their own personal information, the U.S. Government is encouraging the private sector to establish codes of conduct and self-regulation for the protection of consumer privacy. Effective self-regulation involves substantive rules, as well as the means to ensure that consumers know the rules, that companies comply with them, and that consumers have appropriate recourse when there is non-compliance.

4: Customer Service Standards

What if a product is delivered inaccurately or doesn't arrive at all? What if the product is defective? What if you need more information about product use?

Improved customer service is perhaps one of the biggest advantages for on-line shoppers. Manufacturers are able to provide more product information, and on-screen instructions--often with visuals and sound--to assist consumers. Inventories can be checked, shipments traced, and pricing errors corrected quickly and electronically.

Making a purchase through the Internet should be no different from making a purchase over the counter. The same guarantees and warranties should apply. However, consumers should be aware that standards may vary from country to country.

5: Fraud in Cyberspace

Instances of fraud can be found in any marketplace. The Internet presents new challenges for lawmakers and regulators in determining whether existing laws and regulations are sufficient in the on-line marketplace.

Coordinated efforts between governments, international and multinational organizations will be required to create an on-line marketplace in which consumers can have confidence in both their transactions and opportunities for redress.

Task 9: Analyse the decision by Amazon.com to trial this new technology in the fresh food retail segment; in other words, will it be successful?

For your company

Advantages of e-commerce:

1. Your business would have a store open 24 hours a day, 7 days a week, 365 days a year. Each page on your web store, a sales person who doesn’t need breaks or holidays!!
2. Very low running costs to keep your e-commerce store open for business comparatively to a bricks and mortar shop
3. Opportunity to reach new markets. How likely is it that a new customer is going to phone you from Germany and buy something you sell over the phone? Not likely at all. However, with a web store it’s entirely possible that that same person could find you online and order.
4. Limitless possibility for creation of new sales channels. Perhaps your products are handmade and of interest to Interior Designers. With e-commerce you could potentially approach Interior Designers all over the world more easily.
5. Sell a wider range of stock items.
6. Make more profit per item sold. The math is different, however your costs to sell each stock item goes down dramatically once your web store becomes established and you start to see decent traffic volumes. By consequence you should be able to make a higher margin, even with the slightly lower sale price you will almost certainly need to offer online.
7. Upsells:e-Commerce stores can be setup to offer upsells. For example a customer is looking at your coffee e-commerce store. She is viewing a large bag of Robert&Roberts coffee beans and right below the description she sees an image of a tin of illy coffee and a tin of Lavazza coffee. Above these images reads the text:
8. Perhaps you would be interested in…Below the images it gives very brief information on the product and the price of each, which is a little bit higher than the product she’s currently viewing. Upsells are designed to increase the sale value of each customer.
9. Cross-sells. These are offers of other complimentary products at checkout. Think about when you are in the supermarket and you get to the till. There are always lots of products surrounding you on your wait to pay. Sweets and treats usually. Sometimes special offers. With e-commerce, this can also be the case. In fact you can be even more targeted! Take the last example of the lady buying coffee from you. At checkout you could present her with a French Press or a new Coffee Grinder that you have on special offer.
10. Much higher level of intelligence about your customers behaviour, likes, desires etc…
11. With e-commerce you will have great data about your customers behaviour on your e-commerce store. This data will allow you to adapt your store over time to make it more effective.
12. E-mail Marketing. If configured correctly your e-commerce store should be collecting email addresses for you of potential customers in the future and also of existing customers. With email marketing (executed properly) you have an extremely low cost method of continually driving traffic back to your store with special offers, competitions etc.
13. Better social media engagement. If you take the time and build a social media strategy, having an ecommerce store should increase the effectiveness of what you can achieve with social media. There are exceptions to every rule but generally speaking for ecommerce the majority of your visitors/customers will be sitting at a laptop/computer when making purchases. It is easier for you to incentivise or ask them for a mention on Twitter or Facebook. It’s also slightly easier for them to do it if you use the right technology so consequently your new customer is more likely to oblige.
14. Data. I touched on this in point 9 above but it’s so important it easily deserves 3 or 4 points and maybe a gold star too! With good analytics installed on your e-commerce store you will have a lot of really useful and actionable data about your customer’s behaviour.

Costs to the firm

Identifying the types of costs associated with eCommerce/eBusiness are relatively straightforward. Quantifying the costs is not feasible until you have a clear understanding of the system objectives and have identified the best technology for the job. The types of costs you need to consider are:

• Software Purchase price - Totally dependent on the selected solution - hence the range of menu options in our eBusiness sections of the site.
• Ongoing Maintenance cost - allow for 15-18% of the initial cost annually.
• Communication expenses - Dependent on the bandwidth your system will require, the number and nature of the connections.
• eCommerce-eBusiness Personnel - Very dependent on whether you are running your computer systems in-house, and how far you integrate your systems using eCommerce-eBusiness techniques. A key to success is to have at least one person within your organisation taking charge of your eCommerce-eBusiness systems.
• Organisations may lack the necessary in-house skills to develop the website
• It may be expensive to set up and maintain the trading platform
• May be security concerns
• Certain staff may be unhappy or unwilling to work with the new system
• As there is minimum chance of direct customer to company interactions, customer loyalty is always on a check.
• Mechanical failures can cause unpredictable effects on the total processes.

Task 10: Outline what strategies Alibaba is undertaking to curtail cybercriminal activity?

Task 11: Analyse how trends in the external environment are affecting the revenue streams of these organisations involved in e-commerce.

Task 12: Is the future bright for e-commerce in China?