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E-Commerce 101: The concept

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Amazon.com, Wal-Mart.com, Sears.com and Sonystyle.com all represent a relatively new way of conducting online business known as e-commerce. Recently, e-commerce has taken the online world by storm, withstanding the technological slump of recent years. This article is a simple introduction to e-commerce and examines companies and what role they have played in the advent of the concept. Specifically, we will look at types of e-commerce, benefits and limitations of e-commerce and basic IT strategies, among other concepts within e-commerce.

By the conclusion of this article, you should be able to explain:

  • terms commonly used in e-commerce
  • types of e-commerce
  • successes and failures of e-commerce
  • benefits and limitations of e-commerce to companies and
  • online E-Commerce sources and related literature

What is E-Commerce?

E-Commerce, also known as E-Business, is a type of business conducted 100% electronically. Although E-Commerce is sometimes considered Internet based, purchasing through a vending machine can also be viewed as E-Commerce. What follows concentrates solely on Internet based E-Commerce. This type of commerce takes on many business forms, like B2B or B2C (explained in detail below).

A couple examples of E-Commerce sites include Amazon.com, eBay.com and WalMart.com. To meet their impressive user demands, these sites utilize highly sophisticated and costly software to conduct online transactions.

Why E-Commerce?

Honestly, we all want to shop for cool looking shades at 2:00 a.m. in our underwear. Am I right? E-Commerce allows for this in the comfort and, most importantly, privacy, of our own homes. E-Commerce also permits geographically specific merchandise, like Egyptian art, to be sold internationally. It opens entirely new markets to the smallest of retail stores and creates the competition our markets unequivocally depend upon.

From a business prospective, e-commerce is nothing short of a mechanism to reduce overhead costs involved in maintaining showrooms and physical stores. These cost reductions are then pumped back into research and development and, idealy, result in lower product pricing. Customer service is also improved, allowing potential customers the ability to browse product listings, pictures and descriptions from anywhere, at any time.

Because e-commerce can be exceptionally lucrative with a sound IT strategy, retailers originally known for their physical store locations may see a need and market for E-Commerce as a new business venue, whereby allowing E-Commerce to be viewed as a viable and attractive solution for many retailers around the world.

What makes E-Commerce entities successful?

As with any business, particular elements of running a business leads to success, and there is certainly no exception on the Internet. Discussed below are methods that set successful online companies apart from the rest.

Acquired value : If the product or service is of value to the buyer, a purchase is more likely. Although some customers are willing to pay higher prices for particular product types and qualities, price is often the determining factor.

Company credibility : It is logical to assume that customers feel safer when ordering from a company like Amazon.com or Wal-Mart.com than another online retailer who's name may not be as well-known. Since credibility takes time, television and radio commercials often assist in establishing a successful reputation with buyers.

Convenience : As any customer can attest, convenience is paramount. Designing the site intuitively and easy to browse will increase sales and referral possibilities. One convenience I take advantage of is shopping at 11:00 at night while drinking some grape juice and watching re-runs on TV. Can't get any better than that :)

Customer experiences : Customers will return to those retailers where their purchases went smoothy, packages arrived on-time and adaquate customer service was provided after the sale. Providing good after-purchase support and customer service is an essential technique for generating repeat business.

Customer service : Like all buyers, I love customer service, especially online when no face-to-face communication is initiated. When ordering online, I look for those companies offering tracking numbers for packages and an online order status system.

Personal interaction : Companies that treat each customer as a person will out-sell others who fail to privide a personal touch to each order. For example, instead of treating the customer like a number, treat them like a person, with a first and last name.

Learning the lingo

As with any discipline, learning terminology is fundamental to a good, solid understanding of the concepts. Many e-commerce terms overlap with general business and marketing, so those familiar with either related field will likely pick these terms up quickly. Since we cannot possibly cover all terms here, we will look at 7 well-used terms below.

E-Marketplace: an E-Marketplace is the environment under which e-commerce is performed. More specifically, an E-Marketplace is a relationship where information, like products, pricing or payments, are exchanged.

Business-to-Business (B2B): Instead of selling to you and me, B2B exists when e-commerce retailers sell directly to other businesses. A plastics company, for example, may sell their products to manufacturers of bottles.

Business-to-Customer (B2C): E-Commerce retailers engage in B2C sales when you or I visit a business web site and subsequently make a purchase. For example, each time you buy through Amazon.com, or any other business site, you have just satisfied the 'C' in a B2C transaction.

Customer-to-Business (C2B): When a customer sells a product to a business, a C2B transaction has just taken place. Recently, I completed a web design job for a local business here in town. Since I do web design on a freelance basis, I engaged in a C2B business transaction.

Referral sales: Referral sales is a result of a predetermined arrangement where the business offers a commission, usually less than 15%, to a customer for bringing in business. Amazon.com has a large and especially successful referral system. If you look closely at the URL of referral links, it contains the name of the customer so Amazon.com can determine how much business that particular customer has referred.

Digital economy: Refers to the interaction of technology in the economy, including the Internet and networks, computers and software and other information technologies.

Mobile commerce: Mobile commerce, or M-Commerce, refers to commerce by the way of mobile devices, like hand-held PDAs, for example. Stock gurus who receive stock information via mobile devices are engaging in m-commerce.

Benefits and limitations of E-Commerce

Few technologies have the many benefits e-commerce does, whether taking a small business to never before seen global preportions or opening up millions of new customer markets. E-Commerce has given many companies the right to cheer, and here are a few of the reasons why:

  • Expands markets from local to global
  • Reduces costs with telecommunications and physical maintenance
  • Minimizes resources used for storing physical receipts
  • Instant product updates, including descriptions and pricing
  • 24-hour store visibility to anyone with an Internet connection
  • Large portals enable large product bases, manufacturers and prices
  • 24-hour store visibility to anyone with an Internet connection
  • Search utilities far surpasses the speed used to find products through catalogs
  • Encourages competition between small and large online retailers

With benefits comes limitations. A few are detailed below.

  • Credit Card security is a serious issue if vulnerable
  • Costs involved with bandwidth and other computer and server costs
  • Extensive database and technical knowledge and experience required
  • Customer apprehension about online Credit Card orders
  • Constantly changing technology may leave slow businesses behind
  • Some customers need instant gratification, and shipment times interrupt that
  • 24-hour store visibility to anyone with an Internet connection
  • Search utilities far surpasses the speed used to find products through catalogs
  • Encourages competition between small and large online retailers

The limitations of e-commerce are often conquered by implementing an effective Information Technology strategy. Compelling IT strategies include an analysis of the feasibility of e-commerce for the company's product line, the level of risk involved and the cost involved in maintaining the system and hiring appropriate skill to implement such an endeavor.

Who wins with e-commerce? Clearly, Internet Service Providers and web hosting companies benefit greatly, along with small retail art or photography shops and bookstores. Also in the list are larger entities, including manufacturing companies and large technology suppliers (computers, hardware, software, etc). This list is certainly not all-inclusive; in fact, far from it. With the right IT strategy, almost any company can make a splash with e-commerce.

A few online resources

These online resources help in the decision making process of purchasing products. All links are off-site, and none are affiliated in any way with Stevesdomain.net.

AllBookstores.com - price comparison service for online book retailers
Bizrate.com - product and company reviews
Carpoint.com - helps car shoppers locate the 'perfect' car
Epinions.com - customer reviews and auction prices for many products
Gomez.com - analysis of online retailers
MySimon.com - price comparison service for many products
Pricegrabber.com - price comparison service for many products
Priceline.com - helps locate airline tickets, hotels, rental cars, etc
Shopper.cnet.com - price comparison service for electronic equipment

Related literature

E-Commerce 101 - The Concept is a very introductory article on E-Commerce. For those interested in further reading, listed below are a few books straight from Amazon.com.

The Perfect Store: Inside eBay
e-Business 2.0: Roadmap for Success (2nd Edition)
The Complete E-Commerce Book: Design, Build & Maintain a Successful ...

Okay, so what's the bottom line?

The bottom line, as with anything in business, is money. With an appropriate IT strategy implementation, many brick-and-mortor retailers can transform their business and take themselves online, opening up entirely new markets and enables the business to enjoy additional profit channels.

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