Cost Effective E-Business and E-Commerce Solutions for Large Companies Essay
Chapter #1: Introduction
According to Reynolds (2000), a firm becomes an e-business if it employs internet technologies to conduct most of its operations, whereas “e-commerce refers only to the process of selling goods and services online.” (Reynolds, 2000, p. 8) Another definition tells that “e-business refers to business models built around networking technologies.” (Kalakota, Oliva & Donath, 1999, pp. 23-32) Anyhow, e-commerce is an integral part, or maybe the most important part, of an e-business. For most companies, in this age of the internet, electronic commerce is more than just buying and selling products online. Instead, it encompasses the entire outline process of developing, marketing, selling, delivering, servicing and paying for products and services transacted on internet, the global marketplace of customers with a worldwide network support for business partners. (Brien, 2004, pp. 219) To put it in short, “e-business is a superset of e-commerce”. (Rosen, 2002, p. 2)
Jackson, Harris & Eckersley (2003) believe that “e-commerce is a mainstream part of most organizations.” (Jackson, Harris & Eckersley, 2003, p. 155) In today’s business world, e-commerce has made it possible for organizations to easily share business information with their trading partners, such as just-in-production and just-in-delivery verifications. Organizations using e-commerce technologies have
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E-commerce is not completely different from the physical market. “Some aspects of e-business are exactly the same as in ordinary business, and as it has been for hundreds of years.” (Esmaeily. 2005, p. 39) Both entirely internet-based organizations and traditional firms have adopted e-commerce technologies during the 1990s. Nonetheless, both these types of organizations have presented various trends to embrace new technologies, and the rates of adoption by both types of organizations have also varied according to their individual size and nature. CDnow.com and Amazon.com are the internet-based firms in CD and book retail business, who were early adopters of e-commerce technologies. Gap, in the queue with other industries, was the first apparel industry which applied e-commerce technologies. (Brien, 2004, p. 220) According to Dinlersoz & Pereira (2005), “Internet-based firms tended to be the first movers [,] and established firms sometimes moved first, but usually they followed, either quickly or with some delay”. (Dinlersoz & Pereira, 2005, p. 226)
The current challenge that managers and administrators of large firms face is to decide whether they should implement e-commerce or not. There are different factors that need to be reviewed before making such a decision. In this regard, this study will answer the following research question: What knowledge should managers and administrators of large companies possess if they want to consider and execute a successful implementation of e-commerce?
Organization of the Study
Chapter 1 (introduction) covers the introduction of the study and its various aspects. The research question and objectives have been covered in this chapter along with a brief introduction of e-commerce. Chapter 2 (literature review) will review some of the benefits and limitations of implementing e-commerce that must be considered carefully before making any decision regarding the transformation from a traditional business to an e-business. Some common types of e-commerce (B2B, B2C, etc.) will be covered too. Finally, some of the most common payment methods that are used for online transactions will be reviewed, as this is an important issue for both buyers and sellers.
Chapter 3 (Methodology) is a brief chapter that discusses the methodology of this study along with reasons of the choice. Also discussed in this chapter are the possible methods of research that were available. The next chapter (Chapter #4: Findings and Analysis) covers the case study of Amazon.com and factors that led to its success. Also covered in this chapter are some essential elements of the e-commerce process and some additional success factors that will be useful for managers. Finally, the last chapter (Chapter #5: Conclusions) concludes the dissertation with a recap of the most important things discussed in this paper. Some analysis and suggestions are also included in this chapter.
Chapter #2: Literature Review
Benefits and Limitations of Implementing E-commerce
Incremental Per Consumer Profitability
“Successful e-commerce involves understanding the limitations and minimizing the negative impact while at the same time maximizing the benefits.” (Rana, 2003, p. 27) In the context of e-commerce, the terminology incremental per customer profitability is used to denote the virtual market with respect to the physical market. Organisations use this term to refer surplus or deficit, negative or positive per customer profit that occurs from organisations’ costs and customer utility typically introduced by e-commerce technologies. However, in virtual markets, it depends on per customer profitability ratio. An established organization in low profitability ratio may not like to adopt e-commerce technologies. In other words, If an organization would sells it products or services only to some of its existing consumers through the virtual market at low profits per customer than the physical shop, the net impact is loss. On the other hand, an organization may experience a high profitability ratio in virtual market as comparedd to physical. In reality, organizations’ profitability depends on both technology and the preferred structure of two markets. (Dinlersoz & Pereira, 2005, p. 228)
In this regard, virtual markets can be more profitable as compared to traditional physical market. According to Dinlersoz & Pereira (2005), “It is quite possible that the profit per consumer may be higher in the virtual market and a firm’s market size may increase beyond its local physical market.” (Dinlersoz & Pereira, 2005, p. 264) Firstly, the e-commerce technologies in both developed and non-developed organizations can reduce retail cost transactions such as maintaining customers’ and vendors’ records, ordering, invoicing, information exchange with suppler and consumers and so forth. Secondly, by adopting e-commerce technologies, a firm can reduce its dependence on traditional input of retailing technology. For instance, a huge part of the overall expenses of both developed and non-developed traditional retailer is often incurred in sales force and physical space. In this regard, “systematic evidence is not yet available, efficiency gains made possible by the Internet are believed to be wide-spread.” (Dinlersoz & Pereira, 2005, p. 229) However, for pure internet-based organizations, this means a decrease in transaction costs accompanied by a decrease in distribution and inventory costs. Many organizations have either a manufacturer or a distributor. Some even have both who handle the inventory and shipping services on behalf of the organization through a method known as Drop-Shipping. Consequently, this cuts down cost in a significant manner. For physical or tactical goods, the internet channel is expected to result in a twenty-five percent decrease in distribution costs. (Dinlersoz & Pereira, 2005, p. 229)
The comparative profitability of the offline and online markets can vary due to various factors. The usage of technology is an important factor in this aspect. E-commerce may require significant resources in the beginning. Purchase of web space, websites, networking devices, domains and computers are the things that should be considered before making the decision to implement e-commerce. In this regard, transformation from physical to online business can take a significant amount of money. However, in the long term, this will reduce everyday expenses like maintaining physical records, educating consumers, etc. Web space is normally cheaper than physical space and computers can prove to be more cost-effective and productive than employees. (Dinlersoz & Pereira, 2005, p. 264)
For large companies, e-commerce implementation can prove to be more profitable in the long run as compared to the initial stages. This is because the implementation of e-commerce will require huge funds, and productivity may not be up to the full capacity due to inexperience and initial burdens like new administrative requirements. (Dinlersoz & Pereira, 2005, p. 264)
Researches have proved that transaction expenses can be reduced by a significant amount by implementing e-commerce. Therefore, it is better for managers of large companies to consider the differences in transaction expenses for offline and online transactions. This will help in estimating transaction-related benefits or losses that can be experienced after the implementation of e-commerce. Moreover, besides the reduction in transaction expenses, there has also been reduction in inventory-related expenses. Furthermore, expenses related with distribution can also be reduced by implementing e-commerce. This is especially true for those firms that operate only online. According to a research, the distribution expenses of physical products diminish by at least 25 % in online sales. (Dinlersoz & Pereira, 2005, p. 265)
However, another important issue is that some consumers like to view the products physically before purchasing them. Moreover, some products are viewed physically before they are purchased. The implementation of e-commerce may reduce the sale of such goods. Those consumers who want to examine products physically before buying will also prefer offline sales. Therefore, each of these important factors must be considered by managers when making a decision regarding the implementation of e-commerce. Finally, there are some products that are better promoted and sold through the internet. For example, a digital book can be downloaded easily from the internet rather than being transported in CDs. For the sale of such products, the use of e-commerce is definitely the best solution. (Dinlersoz & Pereira, 2005, p. 265)
Brand recognition, customer trust and an organization’s long presence are three pillars of customers’ loyalty. BBBonline.com and Trust-E.com highlight the significance of such tactile assets of an organization. An organization’s loyal consumer base confers two benefits to the established retailer. Shield (2000) believes that “the established firm can serve its loyal customers with Internet access through a virtual shop without the fear of losing them to competition.” (Shield, 2000, p. 560) Moreover, a firm may get higher prices from consumers who are loyal. (Shield, 2000, p. 560)
One can hope that with the passage of time the number of loyal customers for both established and non-established organizations will grow. In this context, the likelihood of growing loyalty over time increases a new organisation’s incentives to implement e-commerce earlier. Nevertheless, the adoption timing of established firms does not change. Obviously, integrating endogenous loyalty would be more naturalistic and complex. (Dinlersoz & Pereira, 2005, pp. 229-230)
The stress on loyalty has been discussed here due to some researches that have revealed its importance in e-commerce and internet-based markets. In a research, the significance of loyalty was identified for those products which are almost identical in their nature regardless of the company which was selling them. (Dinlersoz & Pereira, 2005, p. 266) Customers who use price-comparison search engines were studied, who are obviously more conscious about prices. After a careful study of a specific product (book), it was found that less than half (49%) of the consumers buy those products which are the cheapest although price was recognized as the most significant factor in the choice of a product. (Dinlersoz & Pereira, 2005, p. 266) In those people who did not buy the cheapest product, the norm was to select a product that was approximately 20 % costlier than the cheapest one. Customers were ready to spend 5 % more to get the same book from Amazon.com as compared to the cheapest rate available. (Dinlersoz & Pereira, 2005, p. 266)
With the introduction of e-commerce, the marketplace has expanded not only in terms of the geographic locations it can cover but also in terms of other aspects like the time customers can spend on window shopping and the diversity in products available at the click of a button. (Dinlersoz & Pereira, 2005, p. 266) This can solve the cannibalization issue as the overall profit can increase significantly even if the profit earned from a single customer decreases. (Dinlersoz & Pereira, 2005, p. 267)
Some Evidence on Adoption Patterns
Interestingly, the aggregate share of e-commerce in retail sale is still modicum. In any class, the contribution of e-commerce sale is not enough to produce perceptible differences across broadly defined product and services classes. Printable products such as books and magazines contributed 45 percent in the overall e-commerce retail sale in 2001. In the same year, electronic items contributed 39 percent and entertainment items such as movies and audio songs contributed 33 percent. This trend suggests that the product nature played a tremendous role in sale. (Dinlersoz & Pereira, 2005, p. 231)
Books and Magazines
Amazon is considered as the first organization which adopted e-commerce technologies in books and magazines industry. In contrast, firms such as Barnes and Noble adopted later. Normally, magazines and books are relatively considered non-customized and homogenous products. In this regard, there is little need for inspection. Hence, customers love the comforts of on-line shopping. Another benefit is easy order booking and home delivery services, which saves consumers’ time and transportation expenses. These aforesaid advantages obviously result in utility gain for customers who purchase products online. On the other hand, organizations’ marginal costs of a product selling online may be lower, as organizations can economize on labor costs, inventory control and so on. (Dinlersoz & Pereira, 2005, pp. 231-232)
Products such as mobile software and downloadable video games are well suit products for e-commerce. In this regard, consumer utility is enhanced due to free demos of video games and movies, and customers have the choice to select the sort of entertainment object that best suits them. With e-commerce, portal firms can also reduce their marginal costs as digital products do not take any physical space for storage purpose. (Dinlersoz & Pereira, 2005, p. 233)
E-Commerce Cost Implications
Simon & Shaffer (2001) believes that “electronic commerce is part of investments in information and communications technology (ICT).” (Simon & Shaffer, 2001, n.p.) Careful assessment of IT investment primarily depends on the valuation of cost and benefits. The tactile or physical and intangible costs are very difficult to allocate. (Simon & Shaffer, 2001, n.p.)
Investment Appraisal Techniques and E-Commerce
Electronic Commerce is part of investments in information and communications technology (ICT). ICT investments have special characteristics (high risk, long term results, large proportion of intangible/hidden costs and benefits, etc.), which make the use of traditional appraisal techniques difficult and the reliability of the outcome most uncertain. (Dinlersoz & Pereira, 2005, pp. 233) “Techniques such as payback period, accounting rate of return, and various discounted cash flows methods, such as net present value (NPV) and internal rate of return (IRR) have been heavily criticized.” (Dinlersoz & Pereira, 2005, p. 233-234)
Goi (2007) believes that “saving from commercial activity on the Web includes cost-effective savings and productivity savings.” He also believes that by directly meeting information needs, an internet site may become extremely cost-efficient. In this regard, many organizations now use their websites to support the possession phase of the consumer-service life cycle. (Goi, 2007, p.6)
Models of E-Commerce
Many companies today are participating in or sponsoring three basic categories of e-commerce applications.
· Business to Consumer (B2C) e-commerce
· Business to Business (B2B) e-commerce
· Consumer to Business (C2C) e-commerce
Business to Consumer E-commerce
In this form of electronic commerce, a business must develop an e-commerce marketplace to entice and sell product and services to consumers. For instance, many companies have e-commerce websites that provide virtual storefronts and multimedia catalogues, interactive order processing, secure electronic payment system, and online customer support. (Brien, 2004, p.224)
Business to Business (B2B) e-commerce
This category of electronic commerce involves both electronic business marketplaces and direct market links between businesses. For instance, many organizations offer secure internet or extranet e-commerce catalog websites for their business customers and suppliers. Also very significant are B2B e-commerce portals that provide an exchange marketplace for businesses. However, others may rely on Electronic Data Interchange (EDI) via the internet or extranets for computer to computer exchange of e-commerce documents with their large business supplier and customers. (Brien, 2004, p.224)
Business to business e-commerce was no doubt the first model of E-commerce which attracted general businesses in terms of exploitation, particularly in supply chain where business to business c-commerce plays a tremendous role. According to Grigoryan (2006), “it is not surprising therefore, that B2B e-commerce is the fastest growing business model. Moreover, B2B sector of e-commerce is the most significant, in terms of financial impact.” (Grigoryan, 2006, p.15)
In addition, B2B e-commerce is the wholesale and supply side of the commercial process, where businesses buy, sell or trade with other businesses. Nonetheless, this model relies on many different information technologies, most of which are implemented at e-commerce websites on the worldwide web and corporate intranet and extranet. B2B applications include electronic trading systems such as exchange and auction portal, electronic data interchange, auction portals and so forth. (Brien, 2004, p.225)
In this regard, many businesses are integrating their web-based e-commerce system with their e-business system for supply chain management, customer relationship management, computer based accounting and business information system. Certainly, this provide assurance that all electronic commerce activities are integrated with e-business process and supported by up-to-date corporate inventory and other databases, which is automatically updated by web sales activities. In addition, B2B sites make purchasing decisions faster, simple, and more cost effective, since organizations can use web systems to research and transact with many vendors. Besides, corporate buyers get one-stop shopping and accurate purchasing information. In fact, in this e-commerce model, organizations often get advices from infomediaries that they cannot get from the site hosted by suppliers and distributors. Hence, organizations can freely bid and negotiate for better prices from a large pool of vendors. (Brien, 2004, p.225) However, along with all these things, “B2B operators must appreciate the significance of data privacy if they are to establish trust”. (Haig, 2001, p. 94) The Secure Socket Layer (SSL) technology can be used for this purpose, which will be discussed later in this paper.
Consumer to Business (C2C) e-commerce
The huge success of auctions like e-bay, where customers as well as businesses can buy and sell with each other in an auction process at an auction website, make this e-commerce model an important business strategy. Hence, participating in or sponsoring consumer or business auctions has been made easier. Electronic personal advertising of products or services to buy or sell by consumers at electronic newspaper sites, consumer e-commerce portals, or personal website is also an important form of C2C e-commerce. (Brien, 2004, p. 225-226)
“E-market places appeared with much fanfare in 1998, providing a compelling vision to transform commerce forever, leveraging technology and uniting thousands of buyers and sellers in an efficient and global manner.” (Peter, Kaura & Chesher, 2003, p. 187)
“E-market places appeared with much fanfare in 1998, providing a compelling vision to transform commerce forever, leveraging technology and uniting thousands of buyers and sellers in an efficient and global manner.” (Peter, Kaura & Chesher, 2003, p. 187) The latest e-commerce market systems are scaled and customized to allow buyers and sellers to meet in a variety of high speed trading platforms. These marketplaces have been distributed into four major sections (Brien, 2004, pp. 246-247):
One to many (selling-side marketplaces)
Some to many (buying-side marketplaces)
Many to some, and (procurement marketplaces)
Many to many (auction marketplaces)
In the presence of aforementioned e-commerce marketplaces, businesses of any kind can buy anything form food to chemicals, electronic items to rubber materials, and paper materials to construction raw materials. (Brien, 2004, pp. 246-247) Thus, in the presence of aforementioned five e-commerce marketplaces, users can buy anything available without geographic constraints. Many e-commerce market portals provide several types of marketplaces. They may offer an electronic catalogue shopping and ordering site for products from many suppliers in an industry. They may also serve as an exchange for buying and selling via a bidding process, at negotiated prices. (Brien, 2004, pp. 246-247)
In this regard, electronic auction site are very popular websites for business-to-business auctions of a variety of products and services. (Brien, 2004, pp. 246-247) And, many of these B2B e-commerce portals are developed and hosted by a third party organization, which serves as an infomediary that brings buyers and sellers together in auction markets. In this regard, infomediaries are organisations that serve as intermediaries in e-commerce transactions. (Brien, 2004, pp. 246-247) Some examples of infomediaries are Ariba, Commerce One, Vertical Net, and Free Market. All provide e-commerce marketplace software products and services to power their web portals for e-commerce transactions. Hence, organisations can negotiate or bid for better prices from a large pool of vendors. Finally, suppliers benefit from easy access to customers from all over the world.
Electronic Payment Processes
Payments for the products and services purchased are an obvious and vital set of processes in electronic commerce transactions. However, payment processes are not simple because of the near-anonymous electronic nature of transaction taking place between the networked computer system of buyers and sellers and the many security issues involved. E-commerce payment processes are also complex because of the wide variety of debit and credit card alternatives and financial institutions and intermediaries that may be part of the process. Thus, during the past few years, a variety of e-commerce payment systems have been evolved. Besides, some new payment systems are being developed and checked to meet the security and technical challenges of e-commerce over the internet. (Brien, 2004, p.239)
Web Payment Process
Most e-commerce systems on the web depend on credit card payment processes. However, many B2B e-commerce rely on more complex payment processes based on the use of purchase order and many other instruments. Many types of e- businesses typically use electronic shopping card process, which enables customers to select products from website catalogue displays and put them temporarily in a virtual shopping basket for later checkout and process. (Brien, 2004, p.239)
Electronic Funds Transfer (EFT)
Electronic funds transfer (EFT) is a major form of electronic payment system in banking and retailing industries. EFT uses a variety of information technologies to capture and process and credit transfers between banks and businesses and their customers. For instance, banking network support tailor services at all banks offices and automated teller machines (ATM) at locations throughout the world. Banks, credit card companies and other businesses may support pay-by-phone services. In this regard, web-based payment services are also very popular payment services, such as Pay Pal and Bill Point for cash transfers and Check Free and Pay Trust for automatic bill payment, which enable consumers of banks and other bill-payment services to use the internet to electronically pay bills. Moreover, most point-of-sale terminals (POS) in retail stores are networked to bank EFT systems. Certainly, this makes it possible for an individual to use his debit or credit card to instantly pay for gas, telephone and other utility bills. (Brien, 2004, p. 240)
Secure Electronic Payment Process
When an individual makes an online purchase on the internet, his credit card information is vulnerable to interception by network sniffers, software that easily recognize credit card number formats. A number of basic security measures are being used to solve this security problem:
1) encrypt (code and scramble) the data passing between the customer and the merchant
2) encrypt the data passing between the customer and the company authorizing the credit card transaction
3) take sensitive information offline
In this regard, many companies use the Security Socket Layer (SSL) security method developed by Netscape Communications that automatically encrypts the data that passes between an individual’s web browser and a merchant’s server. Unfortunately, sensitive information is still vulnerable to misuse once it is decrypted and stored on a merchant’s server. So, a digital wallet payment system was developed. In this method, individuals add security software add-on modules to individual’s web browser. This technique enables an individual’s browser to encrypt his credit card data in such a way that only the bank that authorizes credit card transactions for the merchant gets to see it. (Brien, 2004, p. 241)
Another technology for electronic payment security, Secure Electronic Transaction (SET), extends this digital wallet approach. In this method, software encrypt a digital envelop of digital certificates specifying the payment details for each transaction. SET has been recognized by Visa, MasterCard, Microsoft, Netscape and other industry players. However, SET is expected to eventually become stalled due to the reluctance of companies to incur its increased hardware, software and other requirements. (Brien, 2004, pp.241-242) One more technology, digital signature, has become very famous in this regard. “Digital signatures provide a valuable tool for secure internet trading by ensuring data authenticity and integrity and most importantly by enforcing commitment and non-repudiation for the transacting parties.” (Arnellos, 2005, p.1)
Credit cards are amongst the most common modes of online payment. However, a significant number of people are afraid to use credit cards as they fear that their confidential information can be misused later. Sometimes, the fear of the customer is limited to hackers only. However, some people are also reluctant to trust e-commerce websites that take online payments. If a firm wants to allow credit card payments on its website, it has to get a merchant account from a bank first. (Dietel et al, 2001, p. 136)
A large number of firms are bringing in e-wallets to assist credit card transactions. Through this tool, consumers can keep track of their billing and transportation figure. Moreover, e-wallets also permit the storage of electronic cheques, electronic money and the credit card credentials of several cards. (Dietel et al, 2001, p. 138)
E-commerce websites have to pay certain charges for all the transactions that have taken place through credit cards. In some cases, this may result in a loss if consumers buy something that has little monetary value. Small transactions that involve less than $10 can be eligible for the micropayment feature. This allows companies to secure profitable transactions even if the selling cost is significantly low. These transactions are generally associated with the sale of content that can be downloaded like pictures, songs, etc. (Dietel et al, 2001, p. 142)
Several firms have materialized a strategic alliance with utility firms to provide the facility of micropayments. For example, micropayments can be included in telephone billing if a micropayment service provider has formed an alliance with the phone company. In this context, some e-businesses have also taken advantage of such alliances. These e-businesses give their consumers the option of purchasing products and services without the usage of credit cards; customers are charged in their utility bills for the purchase of products and services from those e-businesses that have formed an alliance with some utility billing firm to give this facility to their customers. (Dietel et al, 2001, p. 142)
Chapter #3: Methodology
In primary research, email questionnaires, telephonic surveys, online polls, or case studies were possible research methods available. Due to the importance of e-commerce and e-business, significant data on various aspects of e-commerce is available in print sources. Due to the nature of this paper, qualitative research was selected as the most feasible research method in this scenario. The author did not have enough resources to conduct interviews (of important personalities) and other forms of qualitative research that could be compared with the extensive research that has already been conducted by professionals in this field. Moreover, interviews from professionals might have resulted in the advertisement of their individual firms, which is not appropriate for an academic paper. Any interview from non-professionals would not have served the purpose of this paper as this paper focuses on informing managers and administrators of large-scale companies about the various aspects of e-commerce. Moreover, any primary research conducted by the author would have been limited to some specific aspects, whereas materials (books, journal articles, etc) written by professional researchers cover almost all areas that are related with e-commerce and e-business.
Since primary research was thought to be less useful in covering the various aspects of e-commerce that this paper needs to cover, the author had to rely more on secondary research. For this purpose, books and journals were used that contain the most authentic information on any topic. Internet sources were not used as a large number of websites can be considered as non-academic when it comes to scientific research. This is due to the fact that anyone can write anything and upload it on a website of his own. The presence of Wikipedia, blogs and other similar websites has made the internet an unreliable source of information. On the other hand, books and journals have specific criteria that are maintained by publishers. Generally, all information in journals and books can be considered authentic and reliable. Therefore, the whole focus of this research was on books and journals, which proved to be very useful in covering each and every aspect of e-commerce and e-business that was required.
Considering all the abovementioned factors, a case study of Amazon.com has been chosen to show the success of one of the most famous online trading firm. A big advantage of choosing this case study is the availability of a wide array of data including surveys, previous researches, polls, interviews, and public opinions on Amazon.com, as this is an ideal example of a successful e-commerce implementation. The key success factors that have led to the global success of Amazon.com have been discussed in considerable detail to provide managers and administrators of large companies with an idea of how they can succeed in implementing e-commerce and in their efforts towards establishing an e-business. Finally, some other success factors have been discussed that are common amongst successful e-businesses.
Chapter #4: Findings and Analysis
Essentials of E-commerce Processes
Access Control and Security
E- Commerce processes must establish mutual trust and secure access between the parties in an e-commerce transaction by authenticating users, authorizing access and enforcing security features. For instance, these processes establish that an e-commerce site and a customer are who they claim to be. This is done via usernames and passwords, encryption keys or digital certificates, or digital signatures. The e-commerce site must then authorize access to only those parts of the site that an individual user needs to access to accomplish his particular transaction. Usually, users are given access to all resources of an e-commerce site except for other people’s accounts, restricted organization data and administrative areas. Organizations engaged in B2B e-commerce may rely on secure industry changes for procuring goods and services or on web trading portals that allow only restricted access to trading information and applications. Other security processes protect the resources of e-commerce sites from threats such as hacker attacks, theft of passwords or credit card numbers, and system failures. (Brien, 2004, p. 235)
Profiling and Personalizing
Once an individual gains access to an e-commerce site, the profiling process can occur that gathers data regarding an individual’s behavior and choices and build electronic profiles of his characteristics and performance. Normally, user profiling is developed by using profiling tools such as user integration, cookie files, user feedback, and so on. In this regard, these tools are then used to recognize an individual’s behavior and provide personalized views of the site content. In addition, the profiling process is also used to help authenticate a user’s identity for account management and payment purposes and to gather data for customer relationship management, marketing, planning, and website management. (Brien, 2004, p. 235)
Effective and efficient search management process provides a top e-commerce website capability that helps consumers in searching out specific product and services they want to purchase or evaluate. In this regard, many e-commerce software packages include a website search engine, or an organization may acquire a customized e-commerce search engine which has a combination of search techniques. (Brien, 2004, pp. 235-236) “Most electronic procurement systems are capable of automatic searches, comparing attribute like price and quality.” (Nir, 2003, p. 26)
Content and Catalog Management
Content management software helps e-commerce organizations in developing, generating, updating and achieving text data and multimedia information in an e-commerce website. In this regard, e-commerce content often takes a form of multimedia catalogue of product or services information. This is a useful tool for e-businesses that is an integral part of the online transaction facility. (Brien, 2004, pp. 235-236)
Work Flow Management
Many of the business processes in e-commerce applications can be managed and partially automated with the help of work flow management software. E-business work flow systems for enterprise collaboration help employees in electronic communication. In this regard, the work flow models express predefined sets of business rule, role of share holders, authorization requirement, routing alternatives, data base used, and the sequence of tasks required for each e-commerce process. Hence, work flow systems ensure that proper transaction, decision, and work activities are performed and the correct data and documents are routed to the right employees, customers, suppliers, and other business stakeholders. (Brien, 2004, p. 237)
In this regard, Microsoft Market (MS) can be taken as a solid example; MS is an internal e-commerce purchasing system that works on Microsoft’s intranet. MS drastically reduces the personnel required to manage low cost requisition and gives employees a quick and easy way to order material without being burdened with paper work. (Brien, 2004, p. 238)
Case Study: Amazon
Amazon is considered as one of the leading virtual retailers on the web. The Amazon search engine for finding products is rapid and accurate. Moreover, the ordering process is easy and fast, confirmation is quick, notifications are accurate and friendly, and delivery notifications are e- mailed when orders are confirmed, as well as day on the shipment day. The company also offers its customer money back guarantees.
In creating this potential powerhouse of shopping services, Amazon.com wants to be more than just a Wal-Mart of the web; it wants to be a next generation retail e-commerce portal. Imagine a customised site where, through personalised shopping services, one will not only shop easily with a trusted brand of books, videos, gifts, etc, but will also search the features of precuts like price, quality, and so forth. That is what has got Amazon so far in its first year of business. Amazon.com was also the first net store to facilitate credit card purchases. This combination of vast selection, efficiency, discount price and personal service is why Amazon is often mentioned as the world’s best website for online retail shopping. (Brien, 2004, p. 244)
Reasons for Amazon.com’s Success
Knowledge of the market and business
It is essential to have knowledge about consumers’ preferences, demands, tastes, etc. Bezos, the mastermind behind Amazon, gained considerable knowledge of the book industry before he stepped into the Amazon.com business. (Kha, 2000, p. 89) However, what was more beneficial for him was his understanding of the online trade. This proficiency provides Amazon.com with an upper edge over its famous competitor Barnes & Nobles. Since Bezos was the first one to step into this line, he had gained considerable pace and goodwill in the online market when the other competitors including Borders stepped into the e-commerce business. The main factor that led to Amazon.com’s success was Bezos, who anticipated the strength of the online market, whereas other famous names were unable to recognize or materialize this opportunity. He realized that he could do through the online market what no one could through the physical market, as he would have exposure to the virtual world that is not confined in boundaries. (Kha, 2000, p. 89)
Concentrate on methods that add value for the clientele
“E-commerce forces companies to look for new ways to make themselves more competitive.” (Maswera, Dawson & Edwards, 2006, p.1) Bezos realizes that his opponents (Barnes & Nobles, Borders, etc.) can reduce the selling price of the goods. (Kha, 2000, p. 89) Therefore, he has concentrated more on providing value-added services to his customers, which gives him another advantage over his competitors. The reviews given by different consumers have greatly contributed to Amazon.com’s books sales. To keep on top of the online market, an e-business must not limit itself to just a single industry. Even if the firm itself is not directly engaged in selling other types of products, it can help those of its customers who wish to buy other products too. Bezos has successfully implemented this concept, which has driven him ahead of his competitors who rely on products of a specific nature. The overall value of the collective services provided by Amazon.com gives it a competitive benefit over others. (Kha, 2000, p. 89)
In 1998, Amazon bought Junglee, which assists consumers in finding various products online. (Kha, 2000, p. 90)Afterwards, Amazon also acquired NetPerception, an intelligent tool that helps in giving suggestions to consumers regarding their best match. This is done through the Cookies technology, which remembers the previous records of customers & visitors and personalizes the website for each individual consumer. (Kha, 2000, p. 90) This is an increasing trend in the online marketplace, and once again, Bezos proved his early recognition capabilities of prospective favorable trends. There are other important things too, which have led to Amazon’s success regarding value-added services. These include the facility of finding books that are in non-English languages. Moreover, if users have forgotten the title of a specific book, Amazon helps them in finding that book. Finally, a lot of information (excerpts, recommendations, etc.) is available for each of the products that are available on Amazon.com. (Kha, 2000, p. 90)
Possess sound logistics
Another success factor for Amazon has been its logistics planning and implementation. “For publishers, the main advantages of e-books consist of reducing the printing inventory and distributing costs as well as the risk associated with demand estimation.” (Ada, 2003, p. 2) Acquiring a large share of the internet marketplace is impossible without having fast and efficient distribution centers. (Kha, 2000, p. 90) Amazon chose to do internal distribution without totally relying on others to execute online orders. (Kha, 2000, p. 91)This way, Amazon has also reduced a probable risk; its opponents cannot acquire its distributors. Moreover, it also makes the whole process faster and efficient as everything will be controlled by a single management team, whereas in other conditions, when a firm uses others to execute online orders, the whole process is divided into two management teams. Finally, this will also increase profits (by saving expenses) since third parties will not have to be paid.
Partnerships to increase profits and product variety
It is not always the best option to acquire other companies. Sometimes, going into partnership with them is the optimal solution. This is what Amazon has done. Through partnership programs, Amazon has not only increased its profits, but it has also increased its market share by getting more consumers and visitors on its website. Many small-scale firms find difficulties in maintaining their businesses due to the lack of advertisement resources and also due to the limited amount of sales. In 1998, Amazon started a new scheme by the name of Advantage Program. (Kha, 2000, p. 91) This helped small-scale publishers in selling their products, as their products obtained prominent space on Amazon’s online portal. These publishers were given the chance of adding their books in the product catalogues along with short descriptions like table of contents, contributors, etc. (Kha, 2000, p. 91) This is what Amazon gave them. In return, Amazon was able to offer its visitors and consumers with quick availability of books from those publishers who are not so famous or who did not have much exposure to the online marketplace due to some reasons. Moreover, Amazon’s list of products in the product catalogues also increased significantly as various small-scale publishers combined to give more variety than a single large-scale publisher.
Analyzing the partnerships in the year 2000 gave the following figures (Kha, 2000, p. 92):
Amazon collected $145 million in a five-year period from partnering with Living.com.
Another $30 million were earned in a three-year period from partnering with Audible Inc.
The partnership with Drugstore was the most lucrative as it brought Amazon $105 million in a three-year period.
The collective amount of these three partnerships means $74 million per year for Amazon. (Kha, 2000, p. 92)
The last successful characteristic of Amazon discussed in this study is Amazon’s policy to continuously innovate. Besides being a retailer, Amazon has also proved itself to be a technological spearhead. This is one of the most important features for an e-business. Through the optimal and timely use of technology, Bezos has enabled Amazon to outclass others in the same industry. Most importantly, he has realized that technology is something which can never maintain profits if it stays on the same level. (Kha, 2000, p. 92) Therefore, Amazon anticipates future market trends and becomes a leading front in those trends before others get the same idea, and this is what Amazon did through its early usage of the Cookies technology as discussed above. Decisions to acquire companies like Junglee and tools like NetPerception are useful tactics to increase profits and provide extra value –added services on a constant basis.
Another good example in this regard is Amazon’s use of the “collaborative filtering” technology, and unsurprisingly, Amazon was amongst the first ones to use this technology. This technology gives suggestions to consumers regarding the purchasing trend of other consumers who have bought a similar product (similar to the one which the customer has bought). (Kha, 2000, p. 95) For example, if Tom goes to Amazon and buys a book “e-commerce and E-business: A Manager’s Guide”, he will be shown what others who have bought this book have also bought. This helps consumers in getting ideas about what other products they can buy to fulfill their requirements. On the other hand, it also results in more sales for Amazon.
More Success Factors
Maza (2000) believe that “on the internet the barriers of time, distance, and forma are broken down, and businesses are able to transact the sale of goods and services 24 hours a day 7 days a week, 365 days a year with consumers all over the world”. (Maza, 2000, p. 1) A basic fact of internet retailing is that all retail websites are created equal as far as the location imperative of success is concerned. No site is any closer to its web consumers than its competitors who are offering similar goods and services. This market is vital in a sense that a business finds ways to build customer satisfaction, loyalty, and relationships. Therefore, consumers keep coming back to a particular store. In this regard, the key to any retail organization is to optimize several key factors such as selection and value, performance and service efficiency, the look and feel of the site, advertising and incentive to purchase, personal attention, community relationship, and security and reliability. Following is a brief explanation of each e-commerce success factor (Brien, 2004, p. 226):
Selection and Value
Certainly, a business must offer web shoppers a good selection of attractive products and services at competitive prices, or they will quickly move away to another web store. However, a company’s products and prices do not have to be the lowest on the web if they build a reputation for high quality, guarantee, satisfaction, and top customer support. For instance, REI.com, a top rated e-retailer helps consumers in selecting quality outdoor gear for hiking with a “How to Choose” section and gives a money back guarantee on its purchases. (Brien, 2004, pp. 226-227)
Performance and Service
People do not want to be kept waiting when browsing, selecting or paying in a web store. Therefore, a site must be designed efficiently that provides ease in access, shopping and buying with sufficient server speed and network capacity that support all website traffic. In addition, web shopping and customer service must also be friendly and helpful, as well as quick and easy. Moreover, products offered should be available in inventory for prompt shipment to the customer. (Brien, 2004, p. 227)
Look and Feel
B2B sites can offer customers an attractive web storefront, shop price areas and multimedia areas, and multimedia product catalogue. These could range from an exciting shopping experience with audio, video, and moving graphics, to a more simple and comfortable “Look and Feel”. Hence, most common e-retail sites lets customer browse product sections, select products, drop items into a virtual shopping cart, and go to a virtual checkout station when they are ready to pay for their chosen products. (Brien, 2004, p. 227)
Advertising and Incentives
Some web stores may advertise in traditional media, but most advertise on the web with targeted and personalized banner ads and other web page and e-mail promotions. Most B2B sites also offer shoppers incentives to return. Typically, this means coupons, discounts, special offers, and vouchers for other web sites, sometimes with other e-retailers at cross-linked websites. Many web stores also increase their market by being part of web promotion campaigns. (Brien, 2004, pp. 226-228)
Personalizing consumers’ shopping experience encourages them to buy and make return visits. In addition, many e-commerce sites also encourage an individual to register on their website and make personal profile. Then, whenever an individual returns, he is welcomed using his name or even with a personal web page. Obviously, this one-to-one marketing relationship builds the reputation of the firm. (Brien, 2004, p. 228) Seale (2006) believes that “today’s e-commerce landscape looks quite different than it did prior to 2001, when thousands of online businesses quickly launched with little planning”. (Seale, 2001, p. 1)
“E-commerce is sharing business information, maintaining business relationship, and conducting business transactions by means of electronic communication network.” (Syed, 2000, p. 4) Website relationship and affinity marketing programs build and promote virtual communities of customers, suppliers, company representatives and others via a variety of web-based collaboration tolls. These include discussion forums, news groups, chat rooms, message board systems, and cross links to related website communities. (Brien, 2004, pp. 228-229) This is an emerging trend that has become common in many websites.
Security and Reliability
Being a customer of a famous web store, an individual has no fear about his personal information such as credit card numbers. Moreover, good e-commerce websites provide their customers assurance and make appropriate steps to ensure that an individual who visits their website for shopping will not lose his personal information. Besides, an individual’s private information cannot be passed without prior request when making a transaction. (Brien, 2004, p. 229) However, Mullins (2002) believes that “so far, the success of an e-commerce model has depended a lot on what is being delivered”. (Mullins, 2002, p. 1)
Chapter #5: Conclusions
E-commerce helps businesses in many ways that enable a business to grow rapidly in this era of science and technology. As reviewed earlier, the incremental cost per consumer can be a decisive factor for some managers, but those who have a long-term vision realize the expansion that e-commerce will bring for them. All these factors must be seen in the context of an e-business if a business wants to succeed in this competitive world of global business. To have a more thorough discussion, the incremental cost per consumer is discussed a little bit further here, as this has importance for every business that decides to go online. This terminology relates to the online marketplace and is seen in the context of the normal offline marketplace. This will help in evaluating the additional earning of the company from each of its customers, which has been brought by the implementation of electronic commerce in the company. Possible reasons for this change can be the difference in expenses between online and offline business, the expansion of the marketplace, etc. It must be noted that the change in the company’s profits from each customer can also be negative if the costs of operating online are greater than that of operating offline. This is helpful in deciding whether a company should implement e-commerce or not.
If the online marketplace is bringing in lower profits per each customer, a company may decide against e-commerce implementation due to the fear of “cannibalization”. This happens when all of a company’s online clients previously purchased offline in such a way that the offline sales were more profitable for the company as compared to the online sales. If this is the case, then the overall impact of the online business will be negative and will obviously result in losses for the company. When online business and trade was not very common, firms were more afraid to enter into the e-commerce field due to the fear of cannibalization. Nevertheless, one important point is usually neglected when considering the cannibalization issue; the online marketplace allows the company to sell its products without any geographic barriers except for the shipping/transportation costs that are necessary for the sale of physical products. Even in the case of physical products, increase in demand in specific geographic locations will definitely lower the overall expenses. For example, if an apparel-selling firm has its business based in London, it can reduce the transportation expenses of its products in specific seasons. It can target the Muslims in Bradford during the Eid season that is an important festival for the Muslim community. During this season, Muslims normally buy a lot of new clothes. Therefore, transporting a big lot in one go will significantly reduce the overall expenses.
As far as large-scale companies are concerned, they already have an accepted goodwill and attracting consumers from distant locations is not very difficult. Therefore, in many cases, especially if a large company is conducting business in only one country, an e-commerce presence may significantly increase the market share of a firm. Moreover, it is not necessary that the expenses of selling online will be higher, especially if a company has to maintain huge stocks. An apparel company that wants to target the London marketplace may get a go down at some place outside the main London city. This will significantly reduce the rent and even some other expenses. London-based consumers can easily select an apparel of their own choice after viewing close-up pictures on the company’s website. On the other hand, if the same company also had a physical presence to target London-based consumers, it will be necessary to have a large apparel display centre in a location that will be convenient for the consumers. Hence, the expenses will increase. Furthermore, consumers living in other near-by places can also order apparel if the sales seem profitable for the company. Even if the company has to sell at a lower profit to these additional consumers, it will bring in some profit that would not have been possible without implementing e-commerce.
Large-scale companies have customers that are loyal to them, and they prefer to buy the products and services of these companies than those of the competitors. This loyalty results from the goodwill of the company that has been established through quality service, confidence in the company’s standards, and other such factors. This was also the case in online trading in the beginning, as customers were hesitant to give confidential information to new or not-so-famous websites. The introduction of various verification and authentication firms like Verisign is a proof that this trend exists online too. Customers are afraid to do business with those firms/websites that are unknown. Therefore, large-scale companies that have a significant number of loyal consumers can expect to gain more than those competitors who have a lower goodwill.
Managers of large companies should consider implementing e-commerce to ensure that their loyal customers do not go to others when they shop online. Moreover, the management of large firms should also bear in mind that any temporary problems with their online services will not only drive their loyal consumers to competitors’ websites, it may also lead customers to the conclusion that their online services cannot be trusted, especially in cases where a large company’s site gets hacked.
Therefore, managers of large firms should assess the anticipated increase in the number of consumers and the profit earned from each sale. This will give them a clear picture whether implementing e-commerce will prove to be successful or will lead towards cannibalization. Some large companies have to show some sort of web presence as it has become more of a trend. However, the decision to have a web presence is not the same as implementing e-commerce. Nestle can have a web presence where people can see the product range, quality, price, and other information. They can have an instant chat to answer queries. However, they may still choose not so sell online. Hence, managers should be careful in evaluating the whole situation before deciding whether e-commerce should be implemented or just a web presence will be enough.
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