E-Commerce Fundamentals: Chapter Two

• Chapter Two introduces the fundamentals of E-Commerce

Objectives

• Identify unique e-commerce technology features and their business significance
• Learn the classifications of e-commerce
• Determine the advantages of e-commerce for organizations and consumers
• Learn the major themes for e-commerce study
• Understand the evolution of e-commerce from its early stages to the present

Eight Unique Features of E-commerce Technology

• Ubiquity
• Global reach
• Universal standards
• Information richness
• Interactivity
• Information density
• Personalization and customization
• Social technology

Ubiquity

• Traditional commerce necessitates a physical marketplace for transactions
• Traditional mediums like television and radio encourage consumers to visit a location for purchases
• E-commerce has ubiquity, meaning it is available almost anywhere, at all times
• This allows shopping from desktops, homes, workplaces, or even cars
• The result of ubiquity is a marketspace, a marketplace beyond traditional boundaries without temporal or geographic constraints

Global Reach

• Global reach enables commercial transactions across cultural and national boundaries more efficiently and cost-effectively than traditional commerce
• The potential market size for e-commerce merchants approximates the world's online population
• Traditional commerce is generally confined to local or regional scales, involving local or national merchants with local outlets

Universal Standards

• Internet technical standards remain uniform, thus e-commerce technical standards are shared globally
• Traditional commerce technologies vary across nations

Information Richness

• Information richness relates to the complexity and content of a message
• Traditional markets and retail shops offer high richness through personalized, face-to-face service during sales
• Online merchants can use richness to deliver marketing messages, an advantage over traditional commerce technologies

Information Richness (Continued)

• E-commerce technologies can offer superior information richness compared to traditional media due to their interactive nature and ability to tailor messages to users
• Interacting with an online salesperson can closely simulate the experience of a physical retail shop
• The richness from e-commerce technologies enables retail and service merchants to market and sell complex goods and services

Interactivity

• Interactivity involves technology that allows for two-way communication between seller and buyer
• This allows vendors to engage customers similarly to a face-to-face setting but on a much larger, global scale

Interactivity (Continued)

• Examples of Interactivity in e-commerce:
  • Comment features
  • Community forums
  • Social networks utilizing 'like' and 'share' options, allowing active consumer interaction with merchants and other consumers
  • Forms that notify a user when errors are detected
  • Search boxes with auto-fill capabilities

Information Density

• E-commerce technologies significantly enhance information density
• Information density represents the overall quantity and quality of information accessible to all market participants
• The Internet curtails the expenses associated with information gathering, storage, processing, and communication, while also enhancing accuracy and timeliness

Information Density (Continued)

• Business consequences arising from increased information density include:
  • Price Transparency: Consumers can easily discover the variety of prices in a market
  • Cost Transparency: Consumers can determine the actual costs incurred by merchants for products
  • Price Discrimination: Selling identical or similar items to diverse targeted demographics at varied prices to maximize sales and profits

Price Discrimination

• Price discrimination is a sales tactic that involves varying prices for similar goods or services based on perceived customer willingness to pay
• Industries, such as airline & arts/entertainment, utilize this technique
• The use of coupons, discounts (e.g. age), and loyalty programs exemplifies price discrimination

Price Discrimination (Continued)

• Price discrimination example: the airline industry
  • Advance airline ticket purchases are cheaper than last-minute ones
  • When demand for a flight is high, ticket prices increase, conversely, low demand results in reduced ticket costs
  • Flights on late Sunday afternoons tend to be more expensive due to passenger preference

Personalization and Customization

• Personalization involves targeting marketing messages to specific individuals, adjusting the message to a person's name, interests, and past purchases
• Personalized product recommendations serve as effective strategies for e-commerce
• A common technique promotes products related to recent or prospective buys, based on past purchase habits

Personalization and Customization (Continued)

• Post-purchase, redirect customers to a landing page featuring "customers also buy" suggestions or send an email including these recommendations
• Display product recommendations at checkout before the customer finalizes their purchase as a proactive measure

Personalization and Customization (Continued)

• Customization alters a delivered product or service contingent upon a user's liking or previous actions
  • Customers favor tailoring t-shirts and bags with unique materials and colors
  • The furniture sector can leverage product customization for items like carpets, tables, and kitchen fittings

Social Technology

• Social technology delivers a many-to-many model for mass communications
• Millions of users can produce content consumed by millions

Business Significance of unique e-commerce features

• E-Commerce Technology Dimension vs Business Significance
  • Ubiquity: Marketplace transcends standard boundaries, negates temporal and geographic reliance
    • Creates "marketspace," enabling shopping from any location
    • Enhances convenience and decreases shopping costs
  • Global Reach: Technology spans geographies and cultures seamlessly and without modifications
    • Creates "marketspace" to include billions of customers and millions of businesses
  • Universal Standards: Provides a common and inexpensive foundation for businesses
  • Richness: Includes rich media in marketing and the customer experience
  • Interactivity: Engages customers in a dialogue for a dynamically adjusted experience
    • Consumer is an active part of delivering goods to the market
  • Information Density: Streamlines information processing, storage and communication, decreases costs, and improves currency, accuracy, and timeliness
    • Creates plentiful, affordable, and accurate information
  • Personalization/Customization: Permits tailored marketing and specific tailoring of goods/services
  • Social Technology: Allows content creation and distribution, promoting development of social networks

Types of E-Commerce

• The nature of the market relationship determines different types of e-commerce
• Mobile and social e-commerce are subsets of these types
  • Business-to-Consumer (B2C)
  • Business-to-Business (B2B)
  • Consumer-to-Consumer (C2C)
  • Social e-commerce
  • Mobile e-commerce (M-commerce)

Business-to-Consumer (B2C)

• Involves businesses selling to consumers
• A familiar type of e-commerce

Business-to-Consumer (B2C) Examples:

• Amazon sells products to customers
• Walmart is an American multinational retail corporation that operates a chain of hypermarkets
• H&M is a multinational clothing company based in Sweden that specializes in fast-fashion clothing for men, women, children, and teenagers

Business-to-Business (B2B)

• Involves businesses selling to other businesses
• It is the largest form of e-commerce

Business-to-Business (B2B) Examples:

• Metalshub is an independent third-party marketplace serving the global metals industry
• Grammarly for Business is designed for teams to ensure clear and professional communication and writing standards

Business-to-Business (B2B) Model

• A wholesaler goes to the Business Organization's website to order products in bulk
• The Business Organization processes the order and supplies the products to the wholesaler
• When the wholesaler receives the products, they can sell them at a high price to their customers

Consumer-to-Consumer (C2C)

• A means for consumers to sell to each other
• The consumer prepares a product for market; then the consumer relies on the market maker to provide a catalog, search engine, and transaction clearing capabilities so that products can be easily displayed, discovered, and paid for

Consumer-to-Consumer (C2C) Examples:

• eBay is an American multinational e-commerce company based in California that facilitates C2C sales through its website
• Etsy is an online marketplace, connecting people to make, sell, and buy handmade and unique items

Consumer-to-Consumer (C2C) Model

• Customer 1 who wants to sell, places advertisement on website, and customer 2 who wants to buy, interacts with website
• Customer 1 receives payment from customer 2, customer 2 receives products form customer 1

Social E-Commerce

• E-commerce enabled by social networks and online social relationships
• Example: Facebook is the leading social network and e-commerce site
• Total social commerce revenues worldwide in 2020 were estimated at around $90 billion (Business Wire, 2020)

Social E-Commerce Example:

• Instagram

Mobile E-Commerce (M-Commerce)

• M-commerce involves the use of wireless digital devices to enable online transactions
• Mobile devices such as tablet computers and smartphones can be used to conduct commercial transactions

Benefits of E-Commerce for Organizations

• International marketplace

  • Single physical marketplace has now become a borderless market and enabled businesses to access people all around the world

• Operational cost-saving

  • The costs of creating, processing, distributing, storing and retrieving information has decreased

• Mass Customization

  • E-commerce has revolutionized the way consumers buy products and services and now customers can configure a product according to their specifications on-line

• No Time Constraints

  • Businesses can be contacted at any time

Benefits of E-Commerce to Consumers

• 24/7 Access: Enables customers to shop or conduct transactions anytime, from almost any location
• More Choices: Provides a broad range of products, customization options, and international suppliers
• Price Comparisons: Allows customers to ‘shop’ around the world and compare prices across different sites
• Improved Delivery Processes: Offers immediate delivery of digital goods via the Internet, and online tracking for the progress of shipped packages
• An Environment of Competition: Offers substantial discounts and added value, as well as choice between retailers

Major Themes Underlying the Study of E-Commerce

• E-commerce involves three broad interrelated themes:
  • Technology
  • Business
  • Society

Technology

• A basic understanding of the information technologies is needed
• This includes knowledge of the Internet, the Web, mobile platforms, cloud computing, desktop computers, smartphones, tablet computers, local area networks, client/server computing, protocols such as TCP/IP, web servers, HTML, and databases.

Business

• Business applications create interest and excitement in e-commerce due to the potential of returns on investment
• It is critical to understand electronic markets, business models, industry structure, and consumer behavior in digital markets

Society

• Being successful in the global marketplace requires understanding the pressures that global e-commerce places on society
• Intellectual property and individual privacy are the primary societal issues

Evolution of E-Commerce

• E-commerce has gone through three stages: Invention, consolidation, and reinvention
  • E-commerce 1995–2000: Invention
  • E-commerce 2001–2006: Consolidation
  • E-commerce 2007–Present: Reinvention

E-Commerce 1995-2000: Invention

• The early years of e-commerce were a technological success, with the digital infrastructure created solid enough to sustain significant growth
• During this Invention period, e-commerce meant selling retail goods, usually quite simple goods, on the Internet
• This period of e-commerce came to a close in 2000 when stock market valuations plunged, with thousands of companies disappearing (dot-com crash)
• Market middlemen-the distributors and wholesalers who are intermediaries between producers and consumers, each demanding a payment and raising costs while adding little value-would disappear (disintermediation)
• Disintermediation is the displacement of Market middlemen who traditionally are intermediaries between producers and consumers by a new direct relationship
• In this new marketspace, extraordinary profits would go to the first movers-those firms who were first to market in a particular area and who moved quickly to gather market share

E-Commerce 2001-2006: Consolidation

• E-commerce entered a consolidation period starting in 2001 and extending into 2006
• Emphasis shifted to a more "business-driven" approach rather than being "technology-driven"
• Large traditional firms learned to use the web to strengthen their market positions; brand extension and strengthening became more important than creating new brands
• During this period of consolidation, e-commerce changed to include not just retail products, but also more complex services such as travel and financial services
• Enabled by widespread adoption of broadband networks in American homes and businesses, coupled with the growing power and lower prices of personal computers
• E-commerce in this period was growing again by more than 10% a year

E-Commerce 2007-Present

• E-commerce entered a reinvention period in 2007, with the emergence of the mobile digital platform, social networks, and Web 2.0 applications
• E-commerce reinvention has resulted in on-demand, personal service businesses such as Uber, and Careem